“Insurers writing policies in the future are going to have language that is explicably excluding liability pertaining to an outbreak like this year,” lawyer Kent J. Schmidt says
As Hollywood looks to resume film and TV production in the coming months, one major roadblock continues to be whether insurance and bonding companies will cover the risks associated with potential COVID-related illnesses and pandemic-related shutdowns.
While producers have long made financial allowances for shutdowns and reshoots in their overall budget, insurance coverage on this type of disruption is in flux in the midst of the coronavirus pandemic.
Elsa Ramo, managing partner of Ramo Law, whose firm represents producers and content creators, estimated that overall insurance and bonding costs of a COVID-protected production could be at least 15-20% higher, while other insiders said that it’s far too soon to determine the potential cost of future coverage — if it’s even available at all.
“Most insurance companies are going to be sure that if it’s a type of pandemic similar to this, whether by duration or whatever the next outbreak is, business interruption policies are going to have much higher language that will make it clear that there is no coverage,” Kent J. Schmidt, a partner at the international law firm Dorsey & Whitney who specializes in business litigation, told TheWrap.
Standard “business interruption” clauses in insurance policies generally don’t apply to pandemics. These clauses usually protect against, say, water main breaks, where production is shut down for a week or two and production can’t continue as planned. Because disease can go on for an undefined amount of time and is unpredictable, this clause wouldn’t protect an employer even when productions have to be shut down if a key cast or crew member becomes infected and needs to quarantine — or if the local government orders a new community-wide shutdown (as has happened overseas when new cases have flared up).
Insurance companies have avoided including pandemics in coverage because the severity of the exposure is too “unpredictable” and too difficult to price, State Farm insurance agent Stephan Buckley, told TheWrap in March. Already, the industry is facing substantial claims from productions forced to shut down in March. Brian Kingman ,of Gallagher Entertainment, told The Hollywood Reporter that his clients have filed over 400 claims ranging from $200,000 to $5 million each.
The language of existing contracts may be vague enough for insurers to pay out some claims, Schmidt said.
“The policies are usually interpreted in favor of the insured. If there is an ambiguity of whether there is coverage, it cuts into the favor of the insured,” he said. “The insurer is usually known for writing policies using language that’s vague to their benefit.”
Policies tend to have clauses that account for “an Act of God” that gets invoked in case of natural disaster, Arthur Silbergeld, a partner at Thompson Corburn LLP who represents employers in litigation and labor relations matters, said.
“Whether this is a natural disaster is very dependent,” he said. “Insurance companies will fight it to the tee. Any production company that is going to start up ought to call their insurance company and find out what happens if and whether the shutdown itself will be business disruption under the policy and if the answer is no, which I would expect, ask if there’s a separate policy that can be purchased. But I expect there is no such policy.”
And given insurance companies’ potential losses under existing contracts, any new contract is likely to be much more explicit about the substantial risks to film and TV shoots in the current pandemic climate.
“Insurers writing policies in the future are going to have language that is explicably excluding liability pertaining to an outbreak like this year,” Schmidt said. “It’s an undetermined amount of money for an undetermined amount of time.”
And the risks to starting (or resuming) any new project in the current climate are significant.
“Let’s say a producer signs a contract that they are renting this place for shooting a movie, and there’s no leeway: There’s no out for them if they have to shut down because it’s an obligation and they have to pay upfront,” Schmidt said. “That’s money spent, and that’s before any issues with respect to anyone being injured — they just have to shut down because that’s the way it is.”
Insuring against that kind of event won’t come cheap.
“They can say, ‘Oh, you want that policy? That’s going to cost you X, but we’re only going to kick in money after $1 million of losses, and they can only be these kind of losses,” Schmidt said.
While big studios and networks could presumably shoulder that cost — they will earn that money back upon the film’s release — for smaller companies or independent producers, “there is no way they could feasibly and responsibly resume production without insurance,” Schmidt added. It all depends on the production costs. For example, uber-producer Jason Blum is working on a plan to shoot a film on the Universal Studios backlot with a small cast and crew that would be quarantined together at a nearby hotel, a person with knowledge of the production said. Blum is known for low-budget projects so a $6.5 million film isn’t too risky for the companies to shoulder financially.
Similarly, last month, Tyler Perry outlined a plan to resume production on two sitcoms at his Atlanta studios by testing and quarantining the cast and crew on his massive lot, complete with housing, for the duration of the shoot. His shows film entirely at his studios and can do a 22-episode season in under three weeks, he said.
“There are glimmers of hope and first to trial. Tyler Perry’s announcement is one approach — his idea of putting everyone in the same ecosystem and whatever is not covered in insurance, there is an assumed risk that they’re all going to take,” Ramo said, adding that a lot of these issues will be “determined on a project-by-project basis.”
No matter when and how production manages to resume, there is no escaping the increased liability all around.
“Everyone has to walk into a production environment in the middle of a contagious virus without a vaccine with a certain level of risk,” Ramo said.
Silbergeld agreed that the burden is shared widely.
“It’s a risk to the employee coming back; it’s a risk for the employer of being sued; and it’s a risk to the insurance company of having a claim that has to be litigated,” he said. “The employer has the obligation to maintain a safe work space. If they took temperatures, sent people home who had any symptoms at all, it’s going to be difficult for the employer to be liable. If you start production and aren’t doing any safety measures, then that’s a different story.”