Absent of specialized policies, pandemics will “not be covered by a general policy,” one attorney tells TheWrap
Over the past week, many companies have canceled or postponed their events or halted production on TV shows and films due to coronavirus scares. According to insurance lawyers and brokers, most entertainment and business policies don’t cover pandemics and many companies will have to “absorb their losses” on their own.
“It would be a specialized insurance policy that would provide coverage for these expenses and damages,” Kent J. Schmidt, a partner at the international law firm Dorsey & Whitney who specializes in business litigation, told TheWrap.
“Most companies have only a general liability policy that covers a relatively narrow subset of potential claims, such as personal injuries or claims specific to an industry,” Schmidt said. “Unless the company has a specialized insurance policy relating to disruption of their business, they are going to have to absorb the losses.”
Stephan Buckley, an insurance agent at State Farm, added that he has not heard of insurance companies covering pandemics at all because the severity of the exposure is too “unpredictable” and too difficult to price. While most policies have a “business interruption” coverage, he added, “there is also an exclusion for disease. There are some unconventional insurance companies that might consider the coverage but that would be suicidal.”
Given the scope of the pandemic, it’s far too early to calculate how big those financial losses might be. “It’s impossible to put a number” on the financial damages, Schmidt said. “Those most affected are going to be parties that have advanced licensing fees or other substantial consideration and will have a difficult time getting those funds back,” he explained. “In some instances, the impact of the pandemic will be more tangential and the argument about why that party should be entitled to relief from performance of a contract or entitled to reimbursement of funds advanced will be more difficult to make.”
Elsa Ramo — managing partner of Ramo Law, whose firm represents producers and content creators — said that companies seeking relief may depend less on the cause of the claim than other factors. “It’s more of a question of what is covered,” she said. “If the lead actress is sick, for example, and she’s covered with minimum essential coverage insurance, there is some coverage involved with days she’s not able to show up. The idea of a production meeting being pushed to prevent the spread itself is not covered and that’s where the issue lies — the anticipatory actions being taken in recalibrating schedules and postponing things is not going to be covered.”
Insurance brokers have been scrambling in the last 24 hours to solve a problem that is evolving in “real time,” she said, noting that employers have to weigh the risks of requiring employees to come to work in group environments (and their potential liability if they contract the disease as a result).
“People are being overly cautious. People on both sides are trying to reconcile and mitigate the loss and the cost… and putting together certain policies relating to viruses, that’s all happening in real time,” she explained. “A pandemic can be covered, but it has to be government-mandated.”
Some policies allow some coverage if the federal government shuts down a production or event by law, but it’s unclear if that might also apply to a mandate by a state (like New York’s forced closure of Broadway theaters) or a municipality (like Austin, Texas’ shutdown of this month’s SXSW).
As more and more productions are being halted, Ramo said that most Hollywood executives are taking a “wait-and-see” approach.
Ramo suggested that content production is likely to take the hardest hit. “You can’t make a TV show or a film without a group of people doing so, whereas a distributor can still conduct a lot of their business working from home,” Ramo said. “The longer the duration is that we’re in this pandemic state, the more the implications of content productions will be catastrophic. Delays in creating content are going to be felt by content producers, but then it gets to the point where less content is produced as opposed to being delayed, and then you are speaking of a shortage of content, and that will have other effects.”
She added: “Just a few months ago, so much content was being produced, but now, there won’t be much to watch. Every domino has a bigger implication.”
Production on TV shows like “Riverdale,” “Survivor,” “Russian Doll” and “Grey’s Anatomy” have halted, and on Friday, Disney announced it would pause production on live-action titles like “The Little Mermaid” and “Shang-Chi.” This, of course, affects crew and cast members, as well as the distributors and theater owners.
Live events, both for the industry and consumers, have scrambled to adapt. Next month’s TV upfronts will skip the series of splashy parties and live announcements the networks to pitch advertisers more directly. And SXSW, which was canceled last week due to the spread of the virus, has offered to screen accepted films on the festival’s online streaming platform and will distribute awards to films that had been scheduled to play in competition.
Unfortunately, the cancellation also forced SXSW to lay off one-third of its employees, with SXSW co-founder and CEO Roland Swenson telling the Wall Street Journal that the organization stands to lose “tens of millions of dollars.”
Since then, other events like CinemaCon, E3, the Tribeca Film Festival, PaleyFest LA 2020 and NAB 2020 have been cancelled, while other events like LA Pride and Coachella have been postponed until a later date.
Ramos said postponing an event instead of flat-out canceling is one way to mitigate financial losses. But she said that Coachella would not be covered from the revenues lost or the additional expenses involved in moving the date. “I don’t think insurance is going to cover them for the profit or revenue realized,” Ramo explained. “A lot of these venues are postponing as opposed to canceling and are trying to facilitate refunds or bookings that is going to help mitigate the loss.”
One event that is still up in the air is the 2020 Cannes Film Festival, which is set to take place in May. While organizers are trying to downsize the event and limit audiences in the theaters, they have said they are still moving ahead. Of course, should the coronavirus worsen in France, Cannes organizers will have to reevaluate. “In Cannes’ benefit, they may get more government support,” Ramo explained. “There may be government resources to mitigate that loss. It’s still fairly catastrophic. Even if insurance covers some, it won’t cover lost gains.”
According to the CDC, there are 1,875 coronavirus cases in the United States, with 41 total deaths. According to the New York Times, there are more than 142,000 confirmed cases of globally and at least 5,300 deaths.