Hurricane Sandy: Hollywood Reads Insurance Fine Print in Storm's Aftermath

Lights Out

In New York City and the immediate suburbs, some 650,000 people lost power, according to Con Edison, which is more than three times the number of people affected by Hurricane Irene. "This is the largest storm-related outage in our history," said ConEd senior vice president for electric operations John Miksad.

For some in the entertainment industry looking to recover losses due to the devastating hurricane that hit the Northeast earlier this week, a broken construction crane dangling a thousand feet in the air is emblematic.

The broken crane loomed for days above West 57th Street in Manhattan within proximity of Carnegie Hall. As a result of the imminent danger, the famous concert venue had to cancel performances all five days this week.

Some have estimated that Hurricane Sandy could amount to tens of millions of dollars in damages for the entertainment industry, but is it possible to get a firm grip on the financial loss at the same moment the region is suffering gas shortages, when many subways remain out of order and with objects like dangling construction cranes presenting challenges to any return to normality?

"It's absolutely too early to tell the damage," says LeConte Moore, the managing director at DeWitt Stern and one of the leading insurance brokers in entertainment and media. "All our clients are trying to figure this out. Carnegie Hall doesn't know how long that crane is going to be hanging there. They don't know if the damage is going to be $50,000 or $70,000."

Hurricane Sandy caused many productions to be interrupted this week including a dozen movies and 21 TV series shooting in New York, Jimmy Kimmel's first performance at the Brooklyn Academy of Music, and for several days, all of Broadway. For a big-budget film, a delay of just one day can cause up to $250,000. A very profitable theatrical drama or musical can lose up to $100,000 in refunds for every lost day.

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Some in Hollywood are already counting on recouping that money. A DreamWorks spokesperson says the expectation is that insurance will cover almost everything in the delays on production for Vince Vaughn starrer The Delivery Man.

Others will be reading their insurance policies for answers.

"The sportscaster Warner Wolf used to say, 'Let's go to the videotape,'" says Moore. "We say in the insurance business, 'Let's go to the policy.' They are not the same boilerplate. And it all depends on wording."

Contrary to what most people believe, Moore says that most insurance policies don't have a provision known as "force majeure," legal speak for an act-of-god. Those provisions are actually more standard in contracts between productions and their vendors.

Instead, when it comes to recovering losses, entertainment executives will be looking at other outlets to regain the money that was lost due to the storm. The broadest policy provision is known as "cancellation of event" insurance, but it's also quite rare, typically reserved for one-off special events. The Kimmel show might have had it, although a spokesperson wouldn't comment.

More typical are policies that cover potential perils such as "loss of power" and "civil authority." The first speaks for itself. The latter covers business income losses when access to an insured premises is prohibited by a governmental action.

That's why in recent days, many producers were likely taking careful notes upon the words and actions of the office of Mayor Michael Bloomberg. The decision to take many subways off-line likely will result in many insurance policies paying off. So too was the decision by the Mayor's Office to revoke production permits temporarily. For Broadway, where premises weren't damaged and lights never went off, many producers will have their civil authority coverage to fall back on.

Hurricane Sandy has affected hundreds of thousands of homeowners in the region, and likely many people in the Northweast will become upset upon finding their homeowners' insurance isn't broad enough to cover flooding. A few months from now, there will probably be news reports of fights between homeowners and insurers over deductables.

In fact, even before the storm had entered the region, there were law firms that were snapping up Hurricane Sandy-related domain names. For instance, the Florida law firm of Katzman Garfinkel & Berger registered and "We're reaching out to the Northeast to see if anyone needs assistance," says firm partner Lee Katzman. "Many will find that insurance companies aren’t as good neighbors as they say they are."

In contrast, Moore says that many big entertainment companies will find somewhat friendlier insurers.

"The entertainment insurance companies which are Chubb, Fireman's Fund, One Beacon and Traveler's are very experienced in this and they are going to look to pay; They don't look for ways not to pay," he says. "The reason is that is film and TV companies are pit bulls about coverage, and the industry is so small. It's easy to get blacklisted quickly."

That's not to say there won't be any difficulties. Yes, policies will kick in, but there likely will be arguments to come over what kinds of expenses can be truly recouped, say experts.

Of course, not everyone in entertainment will find the path to loss recovery to be easy.  For instance, many low-budget independent film productions took their chances that they could get away without good insurance and are now paying for those bad bets.

Such is the case for Steve Stanulis, executive producer of the indie-film Long Shot Louie, described by him as Boogie Nights meets The Wrestler. On Monday, when the hurricane reached ground in New York, Stanulis was set to wrap production on the film's important last scene set on Midland Beach on Staten Island. Instead of shooting a scene where the film's main character realizes that everything needs to change in his life, Stanulis, a former NYPD officer, scrapped the shoot in favor of helping rescue people in the area.

Stanulis now says that Midland Beach looks like a third world country and he's hoping to find another part of Staten Island to finish shooting soon. But he admits it will be expensive. "It's an act of God when something like this occurs," he says. "Insurance doesn’t cover it. Financially, we took a big hit. We had to pay for permits and actors for another day so the costs have been really astronomical."

Moore says that the entertainment industry should keep some perspective in the days going forward.

"What's happening to the entertainment industry is peanuts," he says. "Whatever number we do come up with, it's like, 'Shut up, you guys. The entire east coast is devastated and we're talking about 10 films.'"

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