After Canceled Marathon, a New Race Over Insurance

At stake in negotiations among the running club, insurance broker Lloyd's and the members of its syndicate is the financial health of one of the country's foremost athletics clubs, as well as some $15 million in nonrefundable entry fees that runners paid when they registered for the race earlier in the year, plus millions more paid in ticket sales and sponsorships. The race, originally scheduled for Sunday, Nov. 4, was canceled after superstorm Sandy pummeled the New York region on Oct. 29.

Benjamin Lawsky, superintendant for financial services for New York state, has stepped in to try to mediate a settlement in recent days, according to a person familiar with the talks. People familiar with the situation said the negotiations with Lloyd's and the members of its syndicate have prompted the running club, known as the NYRR, to keep its public statements to a minimum about potential refunds for runners and other partners in the race.

In a statement released Saturday, Lloyd's spokesman Peter Fitch said, "The Lloyd's market always seeks to settle valid claims as quickly as possible."

A person familiar with the Lloyd's deliberations said the company already has authorized a "large payment," a sign that it has acknowledged liability, even though the running club and the city decided to cancel a race that could have been held. The person said Lloyd's is still working with NYRR officials regarding the size of the payment, and a significant disagreement remains.

In the first days after the storm, race organizers pledged to hold the event despite mounting pressure to cancel it because of the strain it would place on public services when millions were without power and thousands were displaced from their homes. On Friday, Nov. 2, less than 48 hours before the start of the race, Mary Wittenberg, chief executive of the running club, and New York City Mayor Michael Bloomberg said they were canceling the marathon and wouldn't reschedule it, even though tens of thousands of runners had already descended on the region after being told repeatedly that the event would take place.

"There could have been no worse time to cancel the race," Ms. Wittenberg said in an interview Friday. "The people were all here and all the money was spent, except for some police fees and the prize money."

In the past month, Ms. Wittenberg and her athletics organization have weathered a flurry of public criticism for their initial delay in deciding to cancel the race, the last-minute cancellation and the limited information they have dispensed since then regarding possible refunds for runners and business partners.

"My entire priority is doing our best by our runners first and then our partners," Ms. Wittenberg said Friday. "We want to create the best situation and preserve as much flexibility as possible. But we live and die by our runners. That's what this is about."

For the New York Road Runners Club, the cancellation has sparked a crisis unlike anything in the history of the marathon, which began in 1970. The club now has about $60 million a year in annual revenue, but it operates with little cushion. The NYRR doesn't have enough money to refund all the investments made in the race by runners, sponsors, broadcasters and the travel partners who arranged trips for foreign participants, said an official familiar with the organization's finances.

The marathon accounts for roughly one-third of the NYRR's annual revenue, generating about $23 million each year. Much of that money arrives through registration and membership fees connected to the marathon, which average more than $250 for some 60,000 runners who register for the race.

Complicating matters, however, is that unlike most sporting events, the marathon has a clear no-refund policy, even if severe weather forces organizers to cancel the race. That is much different than what happens when fans buy a ticket to a sporting event such as a New York Yankees game or the U.S. Open tennis tournament. In those cases, if weather causes an event to be canceled, fans can exchange their tickets for a game or match on another date. People familiar with the matter said that any desire by the NYRR to allow disappointed runners to participate in coming events at no charge might not be covered under the club's insurance policy.

After canceling the marathon, Ms. Wittenberg promised the event's runners entry into next year's race or the New York City half-marathon in March. But the running club can't offer free entry until it knows how much money it will be able to recoup from Lloyd's and its syndicate members.

NYRR officials declined to say the maximum level of coverage allowable under the policy, but a person familiar with it said even if the Lloyd's syndicate allowed a full claim it wouldn't cover all of the organization's expenses related to full refunds.