When it comes to liability involving event sponsorship, most cases can be categorized into four exposure groups:

  • Sponsors who donate money,
  • Sponsors who control the event,
  • Sponsors who hold the event on their premises, and
  • Sponsors who are involved in joint ventures.

When donating money to an event for primarily advertising purposes, businesses still face the potential to be sued if something goes wrong. Therefore, a defense obligation is possible. The exposure in this situation, however, is not as great as in other areas.

Controlling the Event
A sponsor who gets involved in managing or controlling the event may likely find their liability exposure to be much greater than if they had no control. For example, a restaurant and a fundraising event sponsor were sued after an attendee was injured. The attendee alleged that both the restaurant and its sponsor negligently failed to take adequate precautions to prevent him from being injured when he tripped over an electrical cable. The sponsor had controlled event planning, collecting admission, and keeping profits and used the restaurant as the venue. The plaintiff won because the sponsor was ultimately responsible for ensuring the premises were reasonably safe for all who attended.

Events on Sponsor Premises
When a sponsor agrees to host an event on their own premises, liability exposure increases, even in cases where the sponsor does not exercise any control. The reason for this is because the landowner, apart from being a sponsor, owes a duty to exercise reasonable care to prevent injury to people or damage to their property. Therefore, if an injury occurs on a sponsor's premises, the possibility of a suit increases.

Joint Ventures
It is not unusual for some sponsors to agree to get more involved in events with the event hosts. When this happens, the sponsor may be considered a joint venture with the exposure to liability greatly enhanced. 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. The problem with a joint venture is that it can happen despite the lack of a written contract. Thus, the sponsor may not realize that their involvement constitutes a joint venture until after something goes wrong.

If the sponsor does not realize they are involved in a joint venture, they may have a serious problem on their hands where liability insurance is concerned because coverage does not apply unless the joint venture is listed as a named insured. Most liability policies contain a 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’s important to also 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 commonly limits coverage to liability at or from the premises. The effect is that the sponsored event on or off the premises must be necessary or incidental to the business being covered.

Some other liability policies limit coverage by endorsement solely to the classification(s) designated in the policy schedule. In these cases, it may be prudent to add the appropriate sponsorship classification.

Managing Liability
Whatever the sponsorship includes, at some point during the process, the business owner should question their potential liability and whether any of the existing insurance will cover the exposures that could give rise to claim or suit. It would be prudent to consult legal counsel to look at all possible liability implications resulting from sponsorship. In addition, consult your insurance coverage producer. In many cases, maintaining a primary and excess liability insurance program may be all that’s necessary for protection. In other cases, much more may be necessary to ensure adequate insurance protection is in place.

The sponsor should transfer the consequences of any potential liability using a hold harmless agreement. The sponsor might also request that they be named an additional insured on the host party's liability insurance, even if the event will take place on the sponsor's premises.

Don’t forget that 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.