Arguments made by insurers denying claims related to COVID-19 shutdowns create a roadmap for how Hollywood companies can plan for future pandemics and other disasters.
As COVID-19 shuttered businesses across America, countless companies asked their insurers to cover losses under traditional property insurance policies and were denied in droves.
But Hollywood had another safety net: production insurance. These specialized policies cover a wide range of risks, including pandemics — at least for policies issued before this world-altering event. Unlike other types of insurance, production policies have not been the subject of extensive litigation, until recently.
While the historical willingness and ability of entertainment companies, insurers, and their intermediaries to amicably resolve claims are positive, it could also mean that the policy language has not been tested and clarified as a result of litigated disputes.
As we move through COVID-19 and focus on other risks like geopolitical instability and extreme weather, policyholders should consider the issues raised during COVID-19 claims and review their policies in planning for how to maximize coverage in the future.
AN OVERVIEW Production insurance generally includes a number of distinct coverages for a single product or group of productions. Policies include various “first party” coverages for when production is forced to shut down or suspend operations due to a covered risk, such as a cast member injury, damage to a set, or an order by a government authority. Other coverages provide liability, or “third party,” coverage that protects the production against the cost of defending and settling a lawsuit. (Productions may also carry a host of other coverages, such as for cyber risks or media liability, although these risks might be covered under corporate policies that insure other types of entities and business lines, not just productions.)
LOSS MITIGATION PROVISIONS The amount of insurance available under a production policy typically depends on the particular risk involved. For example, the 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 getting sick or injured — but only $1 million for a shutdown caused by “civil authority,” like the shelter-in-place orders governments issued at the height of COVID-19. According to a lawsuit filed by Paramount, the insurer allegedly paid the $1 million in “civil authority” coverage, but only $5 million of the “cast” limits, apparently because only one artist or other “covered person” had contracted COVID-19. It argued that unless another “covered persons” had been sick or injured, the remaining $95 million in “cast” limits would be unavailable.
In cases like this, insurers sought to take advantage of the fact that the March 2020 shutdowns prevented many infections, as did the extensive safety protocols implemented when productions resumed. Had productions gone forward in March 2020, or been restarted without implementing extensive safety protocols, more cast members would have been infected, resulting in more and larger claims clearly covered under the limits available for “cast” coverage.