By Donald S. Malecki

One of the ways business owners can advertise relatively cheaply, and often obtain wide exposure, is by sponsoring a short-term event, such as a golf tournament, horse show, skiing event, or by agreeing to long-term sponsorships for bowling teams, Little League baseball teams and others.

The primary ingredient to qualify as a sponsor is money. Whatever the amount required, the sponsor gets its name before the participants, as well as the general public, who may remember and patronize those who supported the events. When the investment required for equipment, clothing, billboards or other expenses is more than a business owner can afford, two or more businesses might co-sponsor the event.

Whatever the sponsorship entails, at some point during the process, the business owner should question its potential liability and whether any of its existing insurance will cover the exposures that could give rise to claim or suit.

Producers are not expected to know the law, only the subject of insurance. The law is left to lawyers. However, all too often lawyers who know the law are not well-versed in insurance matters in those cases, so producers who know their field of insurance can lend valuable input into the legal analysis.

It certainly is not beyond the scope of a producer's realm of knowledge, then, to become familiar with the exposures that can give rise to an allegation of sponsor liability and, hence, the need for liability insurance.

Exposures to claim

Absent the ability for direct interaction with the sponsor's lawyer, there are ways for producers to determine what some of the primary considerations are that may lead to claim or suit against sponsors. For example, the articles in the insurance trade press or law digests sometimes discuss the subject of sponsorship liability, or highlight court decisions of note. Insurance and risk management people should find these interesting to read.

Over a period of years, it has become apparent that if the sponsor's involvement is more than simply donating money, it is a good idea for that sponsor to invest in a lawyer's time to look at the possible exposures that can lead to allegations of liability.

The reason is that even though a sponsor may not be liable for the payment of damages, it can be sued, generating legal costs which, as everyone knows, can be extensive. Although varying laws of different jurisdictions are an important factor to consider when attempting to identify the legal exposures confronting sponsors, it appears that most of the cases thus far involving sponsors can be categorized into three exposure groups:

* sponsors who control the event,

* sponsors who agree to hold the event on their premises, and

* sponsors who are involved in joint ventures.

Controlling the event

The sponsor who ventures beyond the donation of sums for an event and also gets involved in the event to the point of controlling it, may likely find its liability exposure to be of a much greater magnitude than if it did not exercise control.

A case in point is Baker v. Mid Marine Medical Center, et al., 499 A.2d 484 (Sup. Ct. Maine 1985). In this case, a country club and a sponsor of a golf tournament were sued after a spectator was injured. The spectator alleged that both the country club and its sponsor negligently failed to take adequate precautions to prevent him from being struck with a golf ball.

The sponsor asserted that because it did not have the right to supervise the crowd during the tournament, it owed no duty to the spectator. The court, however, ruled against the sponsor, because the sponsor planned the event, collected the admission price, retained whatever profit was derived therefrom, and had a right to use the golf course in order to invite the public to attend. Because the sponsor retained concomitant control over the event, it was not relieved of its nondelegable responsibility to make the premises reasonably safe for spectators.

Events on sponsor's premises

When a sponsor agrees to hold an event on its own premises, the chances of liability increase even in cases where the sponsor does not exercise any control. The reason is that the owner of land (apart from being a sponsor) generally owes a duty to exercise reasonable care to prevent injury to persons or damage to their property. So, if an injury is sustained on the sponsor's premises, the likelihood of a claim or suit increases.

In the case of Hupf v. City of Appleton, et al., 477 N.W.2d 69 (Wis. App. 1991), a participant in a softball league sued the sponsor (city) alleging negligence after he was struck in the eye while leaving the park. The court ruled that the city was not liable by virtue of an immunity statute, and an exculpatory contract signed by the participant.

Unfortunately, businesses do not enjoy the same immunities as some governmental entities. The fact that the exculpatory agreement served as another reason for the city's immunity was a plus. However, exculpatory agreements are not always viewed favorably by the courts and should not be relied on by businesses as a primary source of risk transfer involving sponsorship liability.

Joint ventures

It is not unusual for some sponsors to agree to get more involved in events with their hosts. When this happens, the sponsor may be considered a joint venture with the exposure to liability greatly enhanced. The reason is that the sponsor can be free from fault and still be held liable because liability of one member can be imputed to other members of the joint venture.

Briefly, a joint venture, depending on the law of the jurisdiction, can be defined to be an association where two or more persons, entities, or any combination thereof, share a community interest (i.e., skill, time or property) in profits and losses for a specific purpose. Also, each party must have some power (not necessarily equal) to direct or control some part of the venture. Once that purpose is concluded, the joint venture can be terminated.

The problem with a joint venture, apart from the matter of insurance discussed below, is that it can arise despite the lack of a written contract. Thus, the sponsor may not realize that its involvement constitutes a joint venture until after something happens. Unfortunately, it may then be too late for purposes of relying on some means of risk transfer, such as liability insurance.

Insurance

If a sponsor does not control the event, the event is not held on the sponsor's premises, or the sponsor is not involved in a joint venture, there should not be much to worry about in terms of liability, other than perhaps the legal costs incurred in being brought into a case. From an insurance standpoint, no special form is required to activate coverage; sponsorships are considered part of the operations of a business and should be covered under commercial general liability policies.

If the sponsor does not realize it is involved in a joint venture, it may have a serious problem on its hands, insofar as liability insurance is concerned, because coverage does not apply unless the joint venture is listed as a named insured. Most liability policies contain the clause with the Who Is Insured provision that reads: "No person or organization is an insured with respect to the conduct of any current or past partnership or joint venture that is not shown as a Named Insured in the Declarations."

It is therefore wise for sponsors to consult with legal counsel to determine whether such a joint venture relationship has been created and, if so, communicate same to the producer, or to determine how such a relationship can be avoided if possible.

It also is important to keep in mind that not all businesses enjoy the coverage of standard liability policies. Some businesses are covered by liability policies that have certain restrictions. One of these is the designated premises exclusion which, while the wording varies, commonly limits coverage to liability at or from the premises. The effect is that the event being sponsored on or off the premises must be necessary or incidental to the business being covered.

Coverage for the event is not restricted to the premises since the territorial scope of liability policies commonly encompasses the U.S., its territories, possessions, Puerto Rico, and Canada. However, as stated above, the event must be necessary or incidental to the insured's business.

Some other liability policies limit coverage by endorsement solely to the classification(s) designated in the policy schedule. In these cases, it may be wise to add the appropriate sponsorship classification, if the producer is informed about the exposure concerning sponsor activities.

It also is important to keep in mind that the liability of sponsoring organizations is not limited to bodily injury or property damage. Suits also can be filed based on personal injury or advertising injury. In fact, the case of Rohauer v. Killiam Shows, Inc. 379 F. Supp. 723 (1974) dealt with the issue of whether a sponsor of a television program could be held liable for copyright infringement if it had the power to supervise and control the content of the program.

Risk management

When asked to serve as sponsors where all that is required is the donation of money, businesses face a potential to be sued; and thus a defense obligation is possible. However, the exposure here is not as great as in other areas.

If the sponsor's involvement is more than simply donating money, such as in the control of the event, the sponsor should consider trying to transfer the consequences of any potential liability using a hold harmless agreement. In addition, the sponsor might also request that it be named an additional insured (on a primary basis) on the host party's liability insurance, even if the event is to take place on the sponsor's premises.

Business owners are not likely to give much thought about their involvement as sponsors, and nothing therefore may be conveyed to the producer who handles the coverage portfolio. In many cases, maintaining a primary and excess liability insurance program may be all that is necessary for protection in time of need. In other cases, much more may be necessary including getting the producer and legal counsel together to evaluate the situation and prescribe the best possible protection.

Following an uninsured loss, the problem for producers is being able to prove that they had not been informed of this exposure. *

The author

Donald S. Malecki, CPCU, is chairman of Donald S. Malecki & Associates, Inc. He is chairman of the Senior Resource Section of the CPCU Society, serves on the Examination Committee of the American Institute for CPCU, and is an active member of the Society of Risk Management Consultants.