Glamour & Risk: Insuring HollywoodProduction Companies

For many film lovers, the holiday season is synonymous with the release of Hollywood’s latest screen confections. As production companies scramble to satiate the consumer appetite for thrilling visual effects and stunts, insurers who underwrite these risks are presented with a diverse set of considerations when tailoring policies to the needs of those companies.

Kent Hamilton is executive vice president of Truman Van Dyke Co. in Hollywood, a company which deals with motion picture production, commercials, postproduction facilities and everything else tied with the entertainment business.

“I start from ground zero,” said Hamilton, who became a division manager for Farmer’s Insurance after he had acted, written, directed and produced in the theater. When Hamilton gets a script, he reads it in detail and then reviews it with the producer for any problems that may ensue with regard to stunt activity, pyrotechnics or errors and omissions.

“If it’s going to South Africa, Europe or China, then we deal with not just domestic liability and workers’ compensation but foreign liability and workers’ compensation,” Hamilton said. “So we tailor it to the individual production.”

Putting it all together

While, of course, the workers’ comp and umbrella liability policies normal to any business are used, there are also a number of specialized coverages included in what is known as the producer’s package (or producer’s portfolio).

Traditionally, workers’ compensation is provided by the employer of record. For the most part, feature film production companies hire people to work on a production for an average of four to six weeks. They will also usually hire a payroll service company, in which case, workers’ compensation coverages are provided by the film service companies’ workers’ comp carriers. “We write underlying policies to the payroll service,” Hamilton said. “It becomes the employer of record.”

Andrea Abad, executive vice president for Encore Entertainment, the underwriter for the entertainment programs of The St. Paul Insurance Companies, described the special coverages in a typical producer’s package for motion pictures. One of these is cast coverage, which provides protection against loss in the event an actor or actress is unable to perform during the principal photography period for the film or television show.

“You have so many hours of filming per day, and you need to finish your movie within a specified period of time,” Abad said. “Otherwise, you go over budget because you have grip people to pay, equipment to rent and so on.”

According to information from Fireman’s Fund Insurance Co., a leading underwriter of cinema productions, cast coverage accounts for the highest volume of claims dollars paid. This is the type of coverage that kicked in when Sean Young broke her arm 10 days before shooting of the film Batman was to start. Even “Bart the Bear,” who terrorized Anthony Hopkins and Alex Baldwin in 20th Century Fox’s film The Edge, was insured for accidents or illness which might have prohibited him from performing before cameras.

Examples of large cast claims paid out are the $14.5 million reportedly paid to Wagons East producers when John Candy died of heart failure in 1994, and $5.7 million reportedly paid to producers of two separate film projects when River Phoenix died of a drug overdose in 1993.

Another important coverage is “negative film,” which provides protection against loss to film or videotape. In conjunction with that is “faulty stock.”

“For example, you film, and in the evening you start processing,” Abad explained. “All of sudden you find out—even though you tested your cameras before you started filming—at the bottom of the screen…is a flicker. Either you digitally correct it, or sometimes it could be such a big faulty loss that you have to re-film it.”

In the Woody Allen film Manhattan, insured by Fireman’s Fund, a dinner party scene filmed at the Metropolitan Museum of Art was found to be unusable after it had been developed. Thanks to faulty stock coverage, the producers were able to go back and rent the museum again to shoot the scene a second time.

In addition, there are coverages for props, sets, and wardrobe as well as miscellaneous equipment (i.e. cameras, lights and vehicles). One of the biggest policies ever on record was that written for Star Trek, the Motion Picture by Fireman’s Fund, in which the elaborate prop that served as the Starship Enterprise was insured at full value against virtually any imaginable peril.

Thanks to typhoon coverage included in a $1.5-million policy written by Fireman’s Fund for Apocalypse Now, producers were able to replace a jungle village, equipment and wardrobe destroyed by such a storm just before filming commenced.

Third-party property damage liability provides coverage for the property of others while the production company is using it. Abad gave the example of a production company that wants to film a movie at someone’s mansion. The person who owns the mansion will want coverage for damages that might incur while the property is in the care, custody and control of the production company.

Boats, planes and E&O

“There are other coverages, like non-owned aircraft coverage, weather insurance, surcharges for stunts and pyrotechnics that you really want to make sure are on your policy,” Hamilton said.

Hamilton also noted that there are certain laws and requirements that pertain to filming on a boat. “Regular workers’ comp doesn’t fit in and you have to acquire specific coverage related to the boat and the people on the boat,” he said. “Payroll services aren’t all familiar with it.” Other difficult-to-insure exposures can include hang gliders, parachutists and, as Hamilton put it, “stunt activity that is just downright insane.”

Aerial stunts open a whole other area of special exposures. Hamilton said he has in the past, unfortunately, insured planes that have gone down.

“People die, and there’s not a whole lot of information when these small planes go,” he said. “I had one where they were supposed to turn right, and [instead] they turned left into a hillside and crashed. It becomes ‘who made the mistake?’ Did the production company tell them to turn quickly, or was it a pilot error?”

Such cases are often looked at as shared liability situations. A production company can be held liable in those situations even if it is named additional insured and there is a waiver of subrogation. “That is where you often make a decision to get non-owned aircraft and hull coverage when you film with aircraft,” Hamilton said.

Another important coverage that should be considered is E&O
liability. This will protect producers in the event they become the target of a lawsuit involving libel or slander, violation of personal rights, theft
of idea, copyright or trademark infringement, wrongful use of title,
or defamation.

Getting DICEy

The advent of new television formats, most notably cable, has contributed to another rapidly growing area of the entertainment industry. Productions which fall out of the normal confines of motion pictures or television shows can include documentaries, industrial films, commercials, and educational films; thus known as DICE productions. Music videos can also fit this into this category.

To pick up coverage for DICE productions, there is a special producer’s package that differs somewhat from a motion picture producer’s package.

“Frankly, it’s probably faster growing than motion picture production,” said Richard Rutkin, vice president, L.A. Xcess Insurance Brokers in Buena Park, Calif. “You have more locations, more independent stations that are popping up all over the country. Therefore, you need more production to fill those slots that’s more localized to the needs of the community…There are production companies popping up all over the U.S. that specialize in the needs of the local community.”

While basic coverages are included that are very similar to those
related to motion picture production, cast coverage is generally not utilized in this format, with the possible exception of music videos.

According to Rutkin, another difference is that a DICE package is set up on an annual basis, not just specifically for one shoot. “It’s for all their commercials they’re doing for the whole year in one package, and it’s based on gross production costs for the year,” he said. “If somebody does several [music videos] per year, we can package them into one annual policy. It can be done on a case-by-case basis, but if someone’s going to do more than two or three a year, it’s less expensive to place it on an annual basis.”

Runaway movies

While so-called “entertainment capitals” such as Los Angeles, New York and Chicago are the preferred domicile of many film production companies, recent years have seen a lot of movement to film in countries such as Canada, where producers are lured by favorable currency exchanges and other cost-cutting benefits.

“Any production that leaves the U.S. to go someplace else to shoot because it’s cheaper is known as a runaway production,” said Geoff Palmer of Production Helicopter Inc., which provides aerial coordination and experienced film pilots for feature films, commercials and television shows.

“[They often] go to a location such as Canada, Mexico or South America, and hire a local helicopter operator, who may not be as familiar with some of the risks involved in filming and some of the procedures that have been established by the local film community in L.A.”

With regard to production companies filming out of the U.S., Hamilton said the insurance can be affected depending on the country. “[For example] in Canada, you get specific tax write-offs. They have special laws up there that require a Canadian broker to be involved…There’s subsidizing and you get tax breaks on motion picture production. A lot of our American production has gone up there, and you need to know how to deal with their laws.”

A dog-eat-dog market

Entertainment is often viewed as a dog-eat-dog industry—and the competition in the related insurance industry is no less fierce. In fact, some participants in this arena claim that market conditions are currently so soft that insurance companies are hardly getting half the premium they should be getting for these types of coverages. While limits are determined by the production cost involved in making the film or the video, losses can be very substantial and all too frequent.

An example of the size of exposures in relation to premium dollars collected could be that of a camera which falls off a boat during filming. An insurer might have to pay in the vicinity of $200,000 for the camera, whereas that insurer has collected a premium of about $25,000.

As is true in other areas of property/casualty insurance, this can lead to carriers pulling out of the market, in which case rates have been known to nearly double overnight. Such shakeups are very hard on producers trying to bring their projects under budget and can result in some very unhappy customers.

“Some of the carriers just say, ‘I’m losing money, and I’m out of here,'” Hamilton said. “Everyone else raises their prices, and the clients are all freaked out. The problem being, [clients] will call you months ahead of time…because they’re trying to put their budget in order.”

“Prices are somewhat flat,” Rutkin said. “A number of our carriers talk constantly about trying to take some rate increases, but the reality is the marketplace isn’t allowing them to do any real rate increases…We’re not seeing people repeatedly going down either. It seems to have hit bottom and maybe we’re seeing slight variations of increases, but very minimal increases.”

Rutkin added, however, that the loss histories and ratios with DICE production companies seem far superior to those of the motion picture industry. “That could be because the production companies that fit into the special production area generally have a similar crew most of the year,” he said. “They all work together regularly.”

In terms of setting the amount of the premium, Joseph S. Fitzgerald, entertainment underwriter for Fireman’s Fund Insurance Co., said that the experience of the producer or director, as well as the location and weather conditions for the shoot, all come into play.

“We’re seeing signs of the market firming up…we think it’s going to continue,” Fitzgerald said. He noted that the phenomenon of companies pulling out of this market is a regular occurrence. Those that try out the market but don’t have the expertise last about five to 10 years at most, he said. “When people try to acquire the business by slashing rates, they usually end up leaving the business.” He also noted that DICE productions create a very attractive market for companies right now.

You want to do what?!

Abad opined that, for an experienced entertainment underwriter, anything that is properly underwritten and properly priced is insurable. Nevertheless, she admitted that occasionally people ask for “certain crazy things.”

Hamilton agreed. “There are very few shows that I can’t write [but] every once in a while, you run into somebody that you know is a terrible risk because they’re just not good people,” he said, adding that he has refused to write a risk in the case of producers who refuse to properly protect their people.

The real problems arise when a producer gets so caught up in the film itself that a reality check is in order. For example, today’s sophisticated stunt work, combined with a good director and skilled director of photography, can accomplish near miracles onscreen. However, insurers need to be wary of the risks posed by inexperienced producers, unversed in the difficulties and expenses involved in the creation of certain feats of onscreen magic.

“There was a music video where they wanted to set someone on fire,” Rutkin said. “I suggested that maybe they could digitize that into the scene or maybe rewrite it. It wasn’t something we were really interested in taking on the exposure for—it was just too much. There weren’t enough premium dollars to offset in the event something accidentally went wrong.

“There are ways now with all the new computer systems that people can do things they could never do before without having to actually do the stunt or the pyrotechnic.”

Depending on the severity, Rutkin said that for DICE productions, he will quite often accept stunts or pyrotechnics “as long as a fire marshal is available for the pyros, they have qualified personnel doing the project, and it’s not too far out there.” In any event, most DICE productions are usually looking for the minimal, acceptable effects, since major effects are not affordable on a small budget.

But producers aren’t the only ones who run the risk of being bedazzled by the mystique of Tinsel Town.

“Some brokers’ eyes get real big because of the glamour of it all,” Hamilton said. “I run into it about every three months. Someone will come in with a horror story of trying to deal with their local broker on a motion picture andhow difficult it was and what a nightmare it was. Usually a local brokerage isn’t used to those types of demands
and the time pressures of those demands.”

Despite the added risks involved, Hamilton concluded with the following thought: “It requires extra premium and extra care, but usually anybody that wants to do something with an honest heart can be underwritten,” he said.

Topics Carriers Agencies Workers' Compensation Underwriting Canada Professional Liability