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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 is 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 production or group of productions. Policies include various “first party” coverages for when a production is forced to shut down or suspend operations due to a covered risk, such as a castmember 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 castmember 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 other “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.
But the law recognizes that coverage should also apply to the cost of mitigating a disaster. Production policies include express coverage for such 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 diminish any such loss or claim,” according to court records. It is therefore reasonable for coverage to apply when productions were shut down or safety protocols were implemented to prevent people from being sickened by an airborne virus that attacks the body upon being inhaled. Insurers disagreed, suggesting that a coronavirus infection results in illness, but not the type of acute injury frequently seen in production insurance claims, such as those from a car crash.
Apart from providing coverage for the cost of mitigating injuries, production policies also frequently cover the increased cost of completing an insured production. Accordingly, the extensive cost of complying with COVID-19 safety protocols upon restarting should be covered. Again, insurers disagreed, arguing that no coverage existed for such costs because they were not required by the initial shutdown orders.
Policyholders should be prepared to challenge these types of insurer arguments. When making difficult decisions about whether to shut down or continue in the face of increased costs, companies should be aware of the key insurance provisions and develop facts supporting coverage early in the process. This may help articulate why and how the decisions were made in a manner that supports coverage.
POLICY 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 a peril not otherwise excluded.” Despite a clear reference to protection of “persons,” the insurer argued that coverage was triggered only when there is “imminent direct physical loss or damage” to property. Had the provision also contained a reference to “injury” or “illness,” it could have made clearer that coverage would be available for measures taken to protect people.
DELAYS AND EXTENSIONS Policyholders should consider that an insurer might refuse to extend the policy period if needed to complete principal photography, or only agree to do so under onerous terms, effectively holding productions hostage. In disputes involving Hypnotic and M:I7, pandemic-related delays meant that principal photography had not been completed before the policies expired. The policies limited coverage to events that take place during the policy period, and the insurer allegedly refused to extend the policies on similar terms, insisting on adding a “communicable disease” exclusion and a higher premium. Policyholders should make every effort to ensure the original policy has provisions that allow for extension or renewal to permit completion of the production.
Before the pandemic, companies may have relied on insurers’ long-standing practices, but their response to COVID-19 merits reconsideration and caution.
Attorneys Jeff Kiburtz and Gretchen Hoff Varner, of Covington & Burling, focus on representing policyholders in complex insurance coverage matters.
A version of this story first appeared in the Sept. 6 issue of The Hollywood Reporter magazine. Click here to subscribe.
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