As COVID-19 shut down businesses across America, countless businesses asked their insurers to cover losses under traditional property insurance policies and were turned down en masse.
But Hollywood had another safety net: production insurance. These specialist policies cover a wide range of risks, including pandemics – at least for policies issued before this world-shaking event. Unlike other types of insurance, production policies have not been the subject of much litigation until recently.
While the historical willingness and ability of entertainment companies, insurers and their intermediaries to resolve claims out of court is positive, it could also mean that the wording of the policy has not been thoroughly tested and clarified. following contentious disputes.
As we navigate COVID-19 and focus on other risks such as geopolitical instability and severe weather, policyholders should consider issues raised during COVID-19 related claims and review their policies to plan how to maximize coverage in the future.
AN OVERVIEW Production insurance typically includes a number of separate coverages for a single production or group of productions. The policies include various “first party” coverages when a production is forced to stop or suspend operations due to a covered peril, such as injury to a cast member, damage to a set or an order from a governmental authority. Other coverages provide liability, or “third party” coverage, which protects the production against the cost of defending and settling a lawsuit. (Productions may also have a host of other coverages, such as cyber risks or media liability, although these risks may be covered by corporate policies that insure other types of entities and industries. activity, not just productions.)
LOSS MITIGATION PROVISIONS The amount of insurance available under a production policy generally depends on the particular risk involved. For example, tThe insurance policy issued to Paramount Pictures for Mission: Impossible 7 provided up to $100 million in coverage for a shutdown caused by a cast member becoming ill or injured — but only $1 million for a shutdown caused by “civil authority,” such as shelter orders on places issued by governments at the height of COVID-19. According to a lawsuit filed by Paramount, tThe insurer reportedly paid the million dollars of “civil authority” coverage but only $5 million of the “distribution” limits, apparently because only one performer or other “covered person” contracted COVID-19. He argued that unless other “covered people” were ill or injured, the remaining $95 million in “throw” limits would not be available.
In cases like this, insurers have sought to take advantage of the fact that the March 2020 shutdowns prevented many infections, as did the extensive safety protocols put in place when productions resumed. Had productions moved forward into March 2020, or been restarted without implementing extensive safety protocols, more cast members would have been infected, resulting in increasingly large claims clearly covered by available limits. for “cast” coverage.
But the law recognizes that coverage should also apply to the cost of mitigating a disaster. Production policies include express coverage for these costs, including under “imminent peril” coverage and “due diligence” clauses. For example, the policy at issue in M:I7 promised coverage for expenses or increased costs “to avoid or lessen such loss or claim,” according to court records. It is therefore reasonable for coverage to apply when productions have been shut down or safety protocols have been implemented to prevent people from becoming sick with an airborne virus that attacks the body when inhaled. Insurers disagreed, suggesting that coronavirus infection leads to illness, but not the type of acute injury commonly seen in production insurance claims, such as those resulting from a car accident.
In addition to providing coverage for the cost of injury mitigation, production policies frequently also cover the increased cost of completing an insured production. As a result, the high cost of complying with COVID-19 safety protocols when restarting should be covered. Again, insurers disagreed, arguing that no coverage existed for these costs because they were not required by the original closure orders.
Policyholders should be prepared to challenge these types of claims from insurers. When making tough decisions about whether to close or continue in the face of rising costs, businesses need to be aware of key insurance provisions and develop facts to support coverage early on. process. This can help explain why and how decisions were made in a way that supports coverage.
POLITICAL LANGUAGE Knowing the fine print can help avoid disputes. For example, under one policy, coverage included costs incurred to “protect persons and property…from imminent direct physical loss or damage caused by or resulting from peril not otherwise excluded”. Despite a clear reference to the protection of “persons”, the insurer argued that cover was triggered only in the event of “imminent direct physical loss or damage” to property. If the provision also contained a reference to ‘injury’ or ‘illness’, it might have made it clearer that cover would be available for actions taken to protect people.
DELAYS AND EXTENSIONS Policyholders should consider that an insurer could refuse to extend the period of insurance if necessary to complete principal photography, or only agree to do so on onerous terms, thereby holding productions hostage. In disputes involving Hypnotic and M:I7, pandemic-related delays meant that principal photography was not completed before the policies expired. The policies limited coverage to events that occurred during the policy period, and tThe insurer reportedly refused to extend the policies on similar terms, insisting on adding a “communicable disease” exclusion and a higher premium. Policyholders should endeavor to ensure that the original policy contains provisions allowing for extension or renewal to allow production to be completed.
Before the pandemic, companies may have relied on the longstanding practices of insurers, but their response to COVID-19 bears reconsideration and caution.
Lawyers Jeff Kiburtz and Gretchen Hoff Varner, of Covington & Burling, focus on representing policyholders in complex insurance coverage matters.
This story first appeared in the September 6 issue of The Hollywood Reporter magazine. Click here to subscribe.