Category Archives: Business Insurance

Business Insurance, Insurance Terms

Zagat reports Restaurants Banding Together To Chase Insurance Companies for Denied Pandemic Claims

With my history of decades in the food service industry, and my occupation as an insurance agent, this is a concerning read (link below). Obviously, as a Zagat article, there is much here that demonstrates a lack of understanding of insurance. One point that is fair from the business owners perspective is they buy a possibly poorly-worded “general” coverage called “Business Income” coverage (aka Business Interruption), and without reading policy documents and definitions, it is easy to misunderstand what this coverage is. The same is true for many insurance coverages that have abbreviated, commonly referenced With my history of decades in the food service industry, and my occupation as an insurance agent, this is a concerning read. Obviously, as a Zagat article, there is much here that demonstrates a lack of understanding of insurance. Similarly, I understand that a business owner buys “what they believe to be a generalized” coverage called “Business Income” coverage (aka Business Interruption), and without reading policy documents and definitions, it is easy to misunderstand what this coverage is. The same is true for many insurance coverages that have commonly used abbreviated names or titles: Damage to Premises is another important one that doesn’t actually mean what it generally sounds like, as is Personal Injury, Voluntary Property Damage, Additional Insured, Employers Liability, Non-Owned Auto, Inland Marine, and so on… These are short names for a specific type of coverage that has to be read, understood, or discussed with your agent if you want to know what it REALLY means. So, the miscommunication problem is that policyholders feel like “business income” covers any loss of income, when that is not what it means – that is just an abbreviated term/title for a much more specific type of coverage.

Unfortunately, we all realize that the small, private restaurateur is in an existential crisis. I wish that were not true and that there were an easier solution to help restaurateurs. The food service business model currently has to be radically redefined if there is any hope of surviving, and whether there actually is a long term sustainable model is a big, scary unknown. The primary general purpose of insurance is to be there as a failsafe – to help “make you whole” when there is a circumstance beyond your control that is potentially financially devastating. Clearly, Covid-19 fits exactly into that “primary intent,” however over time as insurance has evolved, there is also a strong case to be made as to why current Business Income claims are being denied. This is disappointing to hear as a business owner because you’d like to believe that “you are buying insurance to protect you against (all) unknowns.” Add to this the overwhelming frustrating legalese of insurance policy forms, and there is plenty of frustration to go around.

A couple of points I’d like to make from my personal perspective:

“A fundamental principle of insurance law is that if something is not specifically excluded, it’s included.” – This is a tricky one. I wouldn’t agree, but would rather clarify two aspects of when this might apply, neither of which apply to Business Income coverage. First, on a Personal Lines Homeowners policy, there is a policy form type called an HO-5, or an “all risk” policy that provides “Special Coverage on Personal Property.” This does indeed mean that for the contents (ONLY! Does not apply to the building!) of your home that you own, every cause of loss is covered unless it is specifically excluded. This endorsement can also be added to many types of regular HO-3 policies. In actual practice, a very, very small percentage of homeowners policies have either this coverage form or this endorsement – up front people don’t want to pay extra for this. However, the Zagat article is not about personal insurance in any way, it is about commercial insurance. Commercial insurance is written on very different forms. The coverage that best approximates the statement is General Liability, a fundamental principle of which is that, “as long as you accurately state (and underwriting approves you for) your intended operations at the inception (and every renewal) of the policy, then any new operations you may begin during the policy term are covered.” Keep in mind that “covered” for General Liability means that if your work causes bodily injury or property damage to others due to your negligence (through action or inaction), then the coverage comes into play (unless excluded). As regards commercial insurance, a more appropriate phrase might be “Insurance doesn’t cover every possible thing, it only covers what it says it covers.”

“The government should get involved because they mandated the closure.” This would seem really what is needed here – the protection of the populace is the purpose for government health directives, so some type of assistance for those business hit hardest would seem to be in order. I’ll use this to clarify what the “Business Income” coverage on a commercial insurance policy is – as that is a source of most of the misunderstanding as to why many claims are being denied. Forget about the communicable disease exclusion for a minute – that is another article. Consider from an insurer standpoint that they are not going to be able to cover business income for ANY reason – they simply cannot take on unlimited risk, insurers are not themselves intentionally meaning to go out of business. To help clarify what this coverage is and how it evolved, they added it as an ENDORSEMENT onto an existing LINE of coverage. That line of coverage is Commercial Property. So, Business Income is an enhancement of property coverage. Because it is a property coverage, it requires a property “Covered Cause of Loss” in order to trigger. While the Special Causes of Loss form for business property is broad, keep in mind that it still requires some type of property loss (aka damage) in order to trigger. Thus, the intent, and the wording of this coverage that has the name “business income” should really be understood as “Business income in the event of a property loss.” In other words, it’s like towing coverage after an auto accident. You may not have towing covered for ANY cause of loss on an auto policy, but if your auto is in a covered accident (somebody hits you, you run into a tree), then towing of your vehicle after that accident is covered. The intent (and the wording of policy documents will show this) of the coverage with the abbreviated/common name of “business income” is that when the contractor next door runs a bulldozer through your water supply lines, or a customer drives their vehicle through the wall of your restaurant, THEN the loss of business income as a result of that “triggering” property loss is meant to be covered.

Regardless of the outcome of this situation, the lesson here is to ask questions and to take an interest in understanding what your policy is and what it is not. Don’t think that you’re purchasing a blanket of protection, when what you’re actually getting is coverage for common yet defined scenarios.

The above is in response to the following article: https://stories.zagat.com/posts/restaurants-banding-together-to-chase-insurance-companies-for-denied-pandemic-claims

Business Insurance, Film Insurance, General Liability, Insurance Terms

Why does everybody want to be an Additional Insured?

Sometimes I have to name other people as an Additional Insured. Sometimes I’m required to have my subcontractors name ME as an Additional Insured.

What’s it all mean, and why are so many Additional Insureds being thrown around?

The short answer is “sh** flows downhill.”

The medium answer is that Additional Insured allows for “risk transfer.” Risk Transfer allows the party closest to the actual negligence to be able to legally and financially (through insurance) respond to a claim.

And the long answer:

When YOU add someone to YOUR insurance “as Additional Insured,” you are protecting that entity against YOUR company’s negligence.

Similarly, when someone adds YOU to THEIR insurance “as Additional Insured,” you are protecting YOURSELF against THEIR negligence.

VERY IMPORTANT

Additional Insured is NOT THE SAME THING as Additional NAMED Insured. These are VERY different!

An Additional Named Insured is typically another operating company that has the same ownership constituency as your company does (e.g. you are 100% owner of both entities).

Most importantly, being listed As Additional Insured on someone else’s policy does NOT mean that you do not need insurance. Only your insurance covers your negligence. Their insurance covers their negligence. Additional Insured status does not change that.

Complicating the concepts of risk transfer and the use of Additional Insured, is that there are three generally different legal applications, depending in which state you/your company is domiciled & insured.  Some states allow (vicarious) liability to be contractually transferred to other entities. Others provide only for clearing of the non-negligent party’s name off of a lawsuit if they did not contribute.

In addition, contracts between main contractors and subcontractors will contain variously stringent applications of the concepts of “indemnify and hold harmless,” and these can affect who responds to a claim. More on that in another article.

The two main types of Additional Insured endorsement are:

  1. Blanket Additional Insured, -or-
    Blanket Where Required By Written Agreement
    This requires an agreement, in writing, executed prior to “occurrence” (and preferably prior to any working relationship) between the parties stating that one shall be required to name the other “as Additional Insured.” Very often this agreement will also have “indemnify and hold harmless” wording as well. There may be other requirements (below) in the agreement.

    1. When a “blanket” Additional Insured (AI) certificate is issued by an insurance agent, there is usually no official record with the insurance company themselves, and no specific policy paperwork that mentions THAT one Additional Insured entity. Certificates are kept on file with the agency. The only part of the insurance policy that indicates there is coverage is a “Blanket Additional Insured Endorsement,” and these come in several flavors (some for Owners, some for Permit Entities, some for Managers of Premises, etc).
  2. Schedule Additional Insured
    This type often does NOT require a written agreement be on file with the policyholder showing requirement of Additional Insured status.

    1. Scheduled AI status is accepted by the insurer (who may need to initially see the contract) and is recorded onto the policy documents for that specific AI entity. Often someone required Scheduled AI status will want to see the official policy document from the insurance company (not just the certificate from the agent) with their name on it.

There are additional clauses which can frequently come into play as regards Additional Insureds, including:

  • Notice of Cancellation
    Very often, interested parties with whom you work will have a requirement to know if your policy is going to be cancelled, say for non-payment of premium. These parties, subject to approval by the insurer and usually a written requirement, can be sent official notification from your insurance company of any changes in your insured status, due to non-compliance, change of market appetite, non-payment or other reasons. Typically requested is 30-day advance written notice of cancellation, with a special exception of only 10-days for non-payment of premium
  • Waiver of Subrogation, -or-
    Waiver of Transfer of Rights of Recovery (against others to us)
    This Waiver is the agreement by the insurance company to “be on the hook” for payout of an insurance claim, EVEN IF it was caused by the waived party. This requires a written agreement (in advance, before any occurrence or claim) that requires the waiver.
    Without a Waiver of Subrogation, in the event of a loss, the insurer reserves the right to “legally become YOU” in court for the purposes of recovering damages (money) that they may have paid out, but they have discovered that someone you work with was actually at fault or negligent in some way.
    See this post for more information
  • Primary and Non-Contributory
    Your policy agrees to pay first, and the other entity’s policy acts as excess after your policy limit is exhausted. However, this endorsement is mostly irrelevant, as the most-negligent party (remember what flows downhill) is the one who always has to pay first before anyone else.
Business Insurance, Film Insurance, General Liability, Special Events

General Liability doesn’t cover my Liability (venue/premises)???

Did you know:

  • General Liability excludes coverage for your liability for property damage to premises you use

With the exception of a few specific cases:

  • Damage to the building portion only,
    • IF by fire
    • Only for your legal liability (claim must arise out of tort/out of your negligence)
  • OR damage to the building and contents rented,
    • IF occupied by you for a week or less (defined as seven consecutive days)
    • For any reason that you would be liable OTHER than fire

Both of the above are:

  • Subject to the “Damage to Premises Rented” sublimit shown in the declarations (usually $100,000 or less – and possibly $0)
  • Only for that portion of the premises occupied by you (does not extend if your damage spreads to other areas of the building)

Any other damage to premises that you occupy is NOT covered by General Liability. If you pay attention to the statements above, you’ll see that a situation such as “FIRE damage to CONTENTS of a location rented for LESS than seven days” is NOT covered!

In addition, while General Liability contains Contractual Liability coverage, that you might think could help out with (lease or usage agreement) contractual requirement for coverage to premises,

  • No coverage is provided by your GL for premises solely by a requirement in a lease (if you are not legally liable, even if you have agreed to be responsible, there is no insurance coverage)

So, when you have a special event, or a film production, and you provide a certificate showing that $1 million per occurrence general liability coverage, and your agent has explained

Liability comes in two parts:

  1. Injury to people (bodily injury), and
  2. damage to property

you think that you’re covered.

You’re not.

This is very important, especially in film production, where a location may be used for more than seven days (including a production office). You have a coverage gap. You have an area where you believe you are covered, but you are not.

There are (at least) three ways to provide for this potentially huge coverage gap:

  1. Third Party Property Damage
    1. Covers property of others in your care, custody and control.
      1. This is the best coverage to add to cover a film location, but is generally NOT asked for by the locations who are asking for “General Liability only” certificates. So beware – without this coverage, you may have huge coverage gaps!
      2. Having a location owner listed as Loss Payee allows for direct payment and settlement with them in the event of a loss.
      3. This is the second most important film production insurance coverage to purchase, after General Liability!
  2. Tenant Liability Endorsement (up to $1 million)
  3. On a Commercial Property policy, you can add the Legal Liability Coverage Form, CP0040, which is for claims that arise from tort (you must be legally liable/negligent)
Business Insurance

Specialty Coverage: Child Care Insurance

There is great coverage for child care centers and day care providers, the people who work hard to care for and protect the children under their supervision. Treat your business to the same level of care, attention and protection! Features of this type of insurance can include:

  • General liability up to $ 3 million aggregate
  • Business Income @ Actual Loss Sustained up to 12 months
  • Coverage for water activites and even dog exposures for family child care facilities
  • Errors & Omissions / Professional Liability is included!
  • We have policies that do not automatically add an abduction exclusion

There are some operations that were previously excluded for preferred coverage and had to go to more expensive “Excess and Secondary” markets, but insurers are now able to consider on admitted & preferred “paper:”

  • You can operate up to 24 hours/day! (used to be 16 hours max)
  • Exclusion “buy backs” include optional abuse & molestation
  • We can now add excess medical/accident coverage for children, as long as no overnight care

These types of policies don’t have to be limited just to individual child care. Agents can also look at coverage for your business that does group or family care, 24 hour child care, Montessori schools, Pre-Schools, HeadStart programs, LatchKey operations and Drop-In centers.

Business Insurance, Film Insurance, Insurance Terms, Lighthearted

What does Inland Marine Insurance mean, and what’s with the funny name?

Inland marine covers loss to either your property or the property of others when it is in your care, custody and control, when the property in question is at a non-permanent location, in transport, temporary storage, or mobile. Property in question does not have to be business property (items owned), but may also be personal (guns, golf clubs, skis, etc.) This type of coverage can also be called a floater.
As for how the terms “inland marine” and “floater” came to be, indulge us in a little story:
Over 300 years ago, a collection of European merchants would meet at a coffee house to discuss their business transactions. Many were in the transatlantic cargo and shipping business, moving sugar cane & rum as well as other commodities around. Pirates were a fact of life, as was bad weather. The merchants, to collectively ease the individual pains when one ship or its cargo was lost, would each pay regular, smaller amounts into a fund, in order to “insure” against loss.
As these merchants expanded this concept, they took the original marine insurance idea and applied it to goods on barges in canals (floater) en-route to their final destination, and to ground-based transportation that worked for the marine merchant companies (inland marine).

The town these merchants were in? London
The name of the coffee house? Lloyd’s

Other events of significant note have created the modern insurance industry. Mrs. O’Leary’s cow (the 1871 Chicago fire) was responsible for an entire new insurance industry, starting with something called dwelling fire coverage, or the fire policy. The 1906 San Francisco earthquake (which actually affected an area from LA to Oregon) called for careful definitions of coverages and causes of loss.

Auto Insurance, Business Insurance, FAQ, Homeowners Insurance, Insurance Terms

What is the difference between Replacement Cost and Actual Cash Value (ACV)?

Actual cash value only pays to replace your home or property after subtracting a deduction for depreciation. For a higher premium, you can purchase replacement cost coverage, which pays the actual cost of replacing your home or property at the price of what it would cost to purchase that item new, today. Replacement cost coverage premiums are about 10 percent more than ACV. Replacement cost contents is an “endorsement” you should definitely consider. (Endorsements are “forms” or changes/additions of special coverage to your policy)

Business Insurance, Insurance Terms

What is a “Waiver of Subrogation”?

Subrogation means, in a legal sense, one party has the right to “step into the shoes” of another party for the purposes of bringing a claim for damages. Not all types of claims may be subrogated. The most common type that can be subrogated is property damage claims.

Example: Joe is an electrician insured by BIG Insurance Company. He is hired by Amusement Park World to replace light bulbs in the parking lot for the park’s opening in the Spring. Amusement Park World requires Joe to sign a Waiver of Subrogation stating that BIG Insurance Company will not be able to recover (from Amusement Park World) any money paid for damages to Joe’s truck if he hits any of the huge potholes in Amusement Park World’s parking lot (a claim for which they would normally be liable).

A waiver of subrogation clause is placed in a contract to minimize lawsuits and claims among the parties. The result is that the risk of loss is agreed among the parties to lie solely with the insurance company. The risk, once assigned to the insurers (insurance companies) by the parties, is determined to stop there, without allowing the insurer to seek redress (legal cation) from any party who may be “at fault” for the loss/claim. In order to add a Waiver of Subrogation to your insurance policy, you will either need to state the number of parties with whom you have such agreements, or you may purchase a blanket waiver of subrogation that will apply to all entities with whom you have a contract with a waiver of subrogation clause.

Insurers have also begun to refer to the “Waiver of Subrogation” as a “Waiver of Transfer of Rights,” or in its full form, a “Waiver of Transfer of Rights of Recovery Against Others To Us.”

Business Insurance, Insurance Terms, Workers Compensation

What does workers compensation cover, and do I have to declare payments made to 1099 subcontractors?

As you probably know, the state requires any employer with more than 2 employees to have workers compensation (work comp) insurance. If you have less than 3 employees you may still decide to purchase work comp coverage. Other states may be different.
Workers compensation covers one of two things, either:
– Medical expenses and lost wages for on-the-job injury or illness or disease contracted as a result of employment; or
– If an employee elects not to get coverage under the first part, then workers compensation covers “employers liability” because your employees have the right to sue for on-the-job injury or illness or disease contracted as a result of employment

Important to note with regards to the first part (medical expenses) of workers compensation is that personal health insurance companies have the right to decline coverage for on the job injuries/illness/disease. In the state, sole proprietors and 10+ percent owners of LLCs and Corporations have the right to “affirmative election” of their right to refuse to be covered by their own workers compensation coverage. In some special classifications of work, the state is no longer allowing owners to exclude themselves, or requires a letter from the state specifically allowing an owner to exclude themself.

The state mandated minimum limit is $100,000 per employees per year (policy period). If you’re thinking about workers comp coverage, then you should also know that Workers compensation is annually auditable from your insurance company. That means they will send you documents requesting bookkeeper verification of your payroll and contractor expenses in order to correct your coverage “basis,” and to retroactively bill or credit you accordingly. You are required to respond with certified, accurate figures in a timely manner to these audits as a provision of your insurance coverage.

Auditing of W-2 employee payroll is pretty clear – payroll fully counts, with the sole exception of 10+% owners having the right to opt out from work comp coverage.

For contractors, there are options:
– Companies that you hire as contractors (who themselves have more than 2 employees) are responsible for their own work comp – so not your problem, though it is wise of you to retain a certificate of coverage for their work comp in your files.
– Sole proprietors (individual people) or single-entity LLCs whom you hire (usually as 1099 individuals) must have one of the following:

– They may provide you with an election to decline coverage form (PDF for Sole Proprietors;   PDF for LLC 10+ percent owners ), which must be notarized and you keep on file. The forms linked in this section are samples in 2010 from the state of New Mexico (look at the bottom of the page on that link for the Special Election forms) – contact the workers compensation administration (look on their website!) in your state for up to date forms.
– They may have their own work comp coverage already. If so, then they need to give you a certificate proving it
– If neither of the above two items apply, then YOUR annual work comp audit will require you to report those contractors AND to pay full value workers compensation on them. In some cases, like if they want to be covered for on the job injury by you, then this may be exactly what and how you want to cover them.

So, if a person who is a contractor working for you, both:
a) Does not have work comp coverage; AND
b) Is an individual and does not want work comp coverage

Then you need to keep the affirmative election for a Sole Proprietor to decline coverage, notarized, on file for them.
The work comp insurance company has the right to verify that you have these forms on file.

Business Insurance, Film Insurance

Insurance options for multiple film projects and the entertainment industry

We’ve explored the coverage and considerations for single productions. In this installment we’ll take a look at insurance for production companies that make many productions as well as policies for industry related businesses. Read through the following list and descriptions to see how insurance would fit you!

Multiple Projects: DICE/Annual Productions

My favorite acronym in movie insurance is DICE which stands for Documentary, Industrial, Commercial(s) and Educational productions, which are typically made by production companies who need an annual policy because they have multiple productions throughout each year. Though the DICE acronym sounds as if it might be restrictive to the type of productions allowed, the underwriters are increasingly opening up this type of policy to almost all production types. DICE/Annual policies combine the best of both insurance worlds – they cover most of the specialized film-specific “producer’s risk” coverage that was discussed in detail last time with the broader scope of a general business owner’s commercial insurance. As you’ll recall, “producer’s risk” can cover shooting and other miscellaneous equipment, property owned by third parties, wardrobe/props/sets, negative/faulty stock and broad automobile coverage. Stunts and cast coverage can now be “bought back” onto these policies, a very recent addition to the offering. A DICE/Annual policy is rated on the average number of productions throughout a year in combination with factoring in of the budget of the largest average production.

We had discussed short term (less than 30 or 60 days) v. long term single productions, and you’ll recall that it is possible to get very affordable coverage for short term production policies of ten days of principal photography for $500. Typically a DICE/Annual policy is going to start around $1,300+ per year, so for a company that only makes two or three productions of ten or fewer days each, it may be just as easy to purchase a number of short term production policies. A DICE/Annual policy covers you for an entire 365 days of the year and takes into account office and incidental operations, so can be advantageous both financially and logistically. Note that in order to cover productions on a DICE/Annual policy, they must always be declared in advance to your agent.

Multiple Projects: Film Schools

You likely recall the scare tactics from the first article in this series  warning against the dangers of sub-sold, paper based “co-production” arrangements from film schools. While the laws against co-production are still in place, they focus primarily on small producers that may be unwittingly taking advantage of a system. However, with the right insurance agent and policy, it is possible to get good coverage for film schools. There are policies specifically crafted to insure productions that are sanctioned by a film school at a U.S. university and for productions by students enrolled at the school. There are over 50 types of productions eligible for this coverage, but anything outside of the U.S. & Canada or with stunts must be insured as a sole and separate single production.
Multiple Projects: Production Portfolio

This recently added insurance option bridges the gap between DICE/Annual policy that is most appropriate and affordable for groups of smaller budget productions and full-fledged larger budget single productions. Production portfolio offers all of the coverages available to a larger production and offers the discounted advantage of aggregating schedules and budgets. This can be of particular advantage for a series. Production portfolio can handle groups of single project budgets up to $15 million and durations of up to 18 months.

Entertainment Services: Photographers, Videographers & DJs (and Shell Corps too)

This type of policy is specifically geared to the very small or sole proprietor business that covers private functions and/or public events. This insurance package puts together the most often requested coverage of general liability, auto liability & physical damage with equipment coverage, whether owned, rented or borrowed. Closely related to this type of policy is the “shell corp” policy for incorported individuals in the entertainment industry such as actors, directors, producers, writers, cameraman, singers, musicians, composers, radio/TV broadcasters, athletes and even touring entertainers.

Entertainment Services: Studios, including post-production

A Studio type of policy covers recording studios, editing studios, pre-production studios and post-production studios. This provides protection for entities continuously engaged in the business of providing a studio facility to the entertainment industry, for any of the purposed mentioned and their related uses. This can be tailored to fit the needs of small to large studios and coverage for catastrophe is available, including earthquake, wind and flood. Studio policies can have up to $5 million in equipment coverage and $10 million in liability as long as they are based in the U.S.

Entertainment Services: Rental Houses

Provides insurance for companies that supply the entertainment, sports and leisure industries with equipment and/or support services including installation. Again, this is for entities “continuously engaged” in the business of renting equipment such as cameras, lighting, sound, props, sets, wardrobe, trailers and more. They may provide equipment for special events such as props, sets, furnishings and more. This policy is closely related to the Studio policy and has the same high limits of coverage and catastrophe buy back available.

Entertainment Services: Floaters and Equipment Insurance

A floater covers property at an indeterminate number of locations U.S. and worldwide, generally for all risks. There are several types of floaters including personal and commercial equipment and valuable schedules. While entertainment equipment floaters are most common, and can be bought without any other coverage being required, we also handle standalone contractors equipment floaters, and personal articles. Personal articles can be comprised of valuables and collections including jewelry, fine arts and other miscellaneous items. A unique product, the film print floater covers not only film prints, but also certain expenses incurred to reprint, recopy or repair lost or damaged property from original material. Film print floater “covered causes of losses” include exposed film; damaged tape, interpositives and positives; work prints, cutting copies and fine grain prints; transparencies, cels, art work used to create images, and software used to generate computer images. Cut-outs and unused footage are not covered.

Entertainment Services: Events

Events policies are available for all sizes and durations of public and private one time and recurring events, as well as for vendors and exhibitors. Event insurance can cover promoters, theatrical groups, venues and even cancellation. This can include festivals and trade shows as well as long duration events.

Entertainment Services: Commercial Insurance

As we get further down this list, you should begin to see the gap between a “normal” business policy and a “specialized” production policy narrow and begin to disappear. Obviously, production insurance branched out of general business insurance, and we do plenty of insurance policies for all types of businesses in the film industry that don’t do any of the specialized things mentioned above.

The word insurance is derived from the Latin word for security. In the 17th century, the word “insure” became established to mean “providing against loss and damage.” The bottom line is that insurance exists to protect you and your interests. To “indemnify” means to make you “whole” again and that’s what we insurance agents are here to do. Insurance is not about premiums and risk and your answering questions the “right” way, it’s about being protected and secure that you can go back to business without suffering an insurmountable financial loss.

Contact your insurance agent, trust and confide in them and be up front about what could happen and what you want covered. We are here to help you and to act in your best interest. Don’t be afraid to ask questions! Make sure you understand your coverages especially what is not covered or what your obligations are. If you can understand some of the available coverages by reading this article, you’ll be ahead of the game in asking questions of and having information to provide your agent. Especially in trying economic times, being fully and properly protected is essential to your future. That’s what we’re here for.

For questions, comments or inquiries, please contact us

Business Insurance, Film Insurance

Predicting the Future: Types of production insurance & what may not be covered?

Insurance only covers what it says it covers… There’s simply no way to provide for every eventuality.

The dirty little secret of insurance is that there may be an unvoiced disconnect between what you think you’re getting and what you’re really getting. Nobody likes to read the 497 pages of high-level legalese that comprise your policy, especially since everybody knows that there are impossible to read clauses in there for all sorts of things, and it would just be more cause to lose sleep worrying about. When in doubt, ask your agent – it’s what they are there for!

In this article, I’ll provide a look at what the most common types of coverages for film and video production insurance are, as well as outline some of the important exclusions. Some exclusions are offered as “buy backs” that you can add back on to a policy for an additional fee. I’ll give an overview of that the definitions of the coverages are, especially breaking down parts of the often-misunderstood general liability core policy and information on property, inland marine, work comp & specialty coverages. Rather than trying to bore you to death with too much of the pseudo-legalese that is insurance jargon, my hope here is that by understanding the differences and intentions of the coverage available, you will be able to ask more questions about coverages to correctly insure your production.

The important thing to remember is that insurance cannot and does not cover every eventuality or hypothetical situation. It covers the major causes of loss that are typical and can be predicted, and that’s why the insurance company works so hard to make a complicated legal document explaining what is and is not covered. Every claim situation is unique, with extenuating circumstances that can make the clarity of coverage akin to a sludgy mix of dirt and water. I hear occasionally from denied claims “Is there any insurance we could have purchased that would have covered this (odd) situation” and the answer unfortunately is just “No.”

The reality is that insurance companies look at the known and expected or unexpected risks that could happen for your production, and they insure as best as they are able, without exposing themselves to huge unknowns. Insurance companies are not in the business of providing coverage for everything under the sun. And, regardless of what insurance companies cover or say they cover, in the eventuality of a major claim involving a lawsuit, it can come down to who has the better lawyer and can sway the judge or jury to fit a square peg into a round hole.

The best way you can prepare to be covered is to understand as much about the available coverages, and to work with an agent who can explain them to you. An agent cannot tell you if there would be coverage in some hypothetically described incident, but they can tell you what is covered and for how much.

So… how do you cover your production?

Larger productions (budgets over $200,000) often buy package policies that include a number of what are called “Producer’s Risk” coverages in a production package policy and may have general liability limits in excess of $1 million per occurrence with a $1 million aggregate maximum payout per policy period. Large productions tend to factor their liability and producers risk insurance premium at around $15,000 per $1 million of budget, not including work comp. Smaller productions tend to pick and choose the actual coverages (called lines of business) they are most likely to need.

All lines of business extend from a core general liability policy. The state of New Mexico and most municipalities require $1 million general liability minimum limit in order to obtain film permits. While general liability is often explained as “slip and fall” coverage, there is a bit more information that is good to understand.

What is liability, general liability and professional or employers liability?

 

Liability coverage comes in two parts: injury to people and damage to property. General liability is the risk, due to the negligence of you and the people working with/for you, of damage to other people’s property or bodily injury to others General liability covers you for “operations in progress.” “Others” does not include people working with/for you, so don’t think that your general liability policy will cover you when a light stand collapses during principal photography and breaks a grip’s finger. On-the-job injuries for those who work for you are covered under workers compensation.  General liability is for third parties. That can include bystanders or volunteers, both whom are never covered under workers compensation.

The broad term “General liability” also includes four additional types of liability coverage:

  • Personal & Advertising Injury liability includes slander and libel, invasion of privacy, malicious prosecution and copyright infringement.
  • Products & Completed Operations liability includes goods or products manufactured, sold, handled, distributed or disposed of as well as operations that are completed and therefore no longer in progress.
  • Medical Expense is a quickly and easily reimbursable coverage for relatively minor medical costs if someone is injured due to an accident on your set. General liability stands behind the medical expense limit in the event you are negligent and the expense grows.
  • Fire Legal liability covers damage by fire to premises that you rent. All of these comprise General liability.

Nationwide (US and Canada) general liability coverage for short term, one-time,  productions with budgets less than $1million start at a minimum premium of $500 that covers up to 10 contiguous days of principal photography, and goes up from there.

Liability Exclusions and Buy Backs

Exclusions to general liability can include:

  • intentional injury
  • contractual liability
  • work-related injury
  • copyright
  • liquor
  • aircraft
  • auto
  • watercraft
  • transportation.

Many of these exclusions are available to be bought back. In addition, they may not mean what you think and you should always ask questions of your agent. As an example, liquor liability is excluded only IF you are required to have a liquor license. “Host liquor liability” which is for non-regular, incidental occurrences relating to alcohol, is included on a general liability policy and would likely provide coverage for that accident that occurs at a wrap party, an informal, workers-only private event if you are not required to have a liquor license.

Some specific exclusions that are important for film and video productions to consider buying back are those for:

  • autos
  • equipment
  • stunts
  • pyrotechnics
  • driving (precision, public or private roads, off road, race tracks or courses)
  • animals
  • fights
  • guns, blanks or squibs
  • jumps & falls
  • water
  • boats, aircraft, railroads or  motor craft of any kind; and
  • cast coverages (accident, sickness, essential element, bereavement & extra expense)

Another consideration is location – production operations in the U.S. and Canada are all automatically covered. Other countries will require a specific endorsement, or may not be available for coverage inclusion because of travel, security or international “unstable government” concerns. The underwriters who work with your agent will let you know what additional information is needed in order to consider various coverages

Other Types of Liability

In addition to General liability, there is one more important piece of liability insurance to consider which is automobile liability coverage. As with general liability, this covers bodily injury and property damage to Others, but is considered to be a “hired auto” and non-owned auto” coverage. Hired Auto means any vehicles that you rent, regardless of who drives them (as long as they work for the production). Non-Owned Auto means any vehicles that are not owned by you, but are instead owned by your employees or people working for you. The liability, as before covers “others,” which means anybody or anything that may get hit, but not the vehicle your person is driving or themselves. Hired and Non-Owned Auto liability is one of the most important coverages for liability purposes, because it covers just about everybody, everywhere, driving anything!

The only other liability coverages highly visible on the radar are what is called Film Producer’s Errors & Omissions (E&O), and the Employers Liability portion of a Workers Compensation policy which we’ll get to a bit later. E&O a.k.a. Professional Liability covers contract disputes, especially those over royalties, rights (music & script), copyright and permissions. E&O provides legal defense and damages coverage against those who may come against you for a share of your revenue, claiming that you stole some portion of their work. E&O policies, unlike other policies are often written for a 3 year period at a time, and if they are renewed, provide coverage back to the date the first policy was written. This is called a claims made coverage form, and itself bears another whole article to explain!

Property Coverage

That does it for the most important of the liability coverages. Many of the remaining common coverages for film productions are “property” coverages, with a Producer’s Risk package covering exactly what it sounds like… for covered “causes of loss,” it covers up to the cost (total budget) to re-shoot an entire production if necessary. Producer’s Risk includes a large and important section oddly named “Inland Marine.”

A quick digression on this term… The origins of the insurance industry come from covering trade on the seas, and boat owners pooling a collection of money to cover the inevitable lost cargo due to various risks on or related to the high seas. The original insurance was called ocean marine insurance and held the transporter liable for loss of property during a voyage. That later grew to include before and after the voyage. In the 1800s, before and after voyage grew to include cargo that would get moved onto non-ocean-going vehicles. The first usage of insuring property on a barge was called “inland marine” insurance to distinguish from an ocean going vessel. As other vehicles besides barges grew to include railroad and other “on land” transportation, the same term remained, and now “inland marine” comes to mean any moving or movable property that is not at a specified or permanent location.

An “inland marine” film insurance policy itself has seven types of property coverage:

  • Miscellaneous (rented or borrowed) equipment – Equipment that you pay a fee to borrow
  • Props, Sets and Wardrobe
  • Negative/Film & Faulty Stock (also hard drives & camera equipment functionality)
  • Third Party Property Damage (a.k.a Care, Custody & Control) – this is coverage for real property (e.g. locations) damage – a coverage that is significantly restricted under normal General Liability
  • Extra Expense – These are the extra expenses you incur because you have a covered loss; Expenses that you would not have otherwise normally incurred in the production had the loss not happened, such as additional night stays in a hotel
  • Vehicle Physical Damage – This covers vehicles that you rent or that are driven or owned by employees/workers
  • Animal Talent & Animal Extra Expense

For more detail on the above types of inland marine coverage, see the film insurance page at www.RioGrandeIns.com or email me at sam@riograndeins.com
By far, the most common additional coverages besides general liability that are seen for small productions are auto liability, miscellaneous rented equipment and vehicle physical damage. For the same minimum premium coverages as the above noted small/short term production 10 day policy, auto liability can be added for an additional $322 and $100,000 (replacement cost) of miscellaneous rented equipment can be added for about another $300.

Workers Compensation

 

Workers compensation coverage (work comp) is important and often at-least-partly misunderstood. The aspects of on-the-job injury or disease contracted as a result of employment are pretty straightforward. Also, most people understand that any employer with more than two employees is required to have work comp in New Mexico. Work comp policies are rated based on total dollar amount of “payroll,” which includes all non-covered contractors as well as all employees. Work comp premium is currently one of the best insurance deals for the money in New Mexico, In 2008, premium ran about $1.89 per $100 of payroll (plus fees & charges), or around 2% of your payroll. By 2014, that had doubled to about $3.65 per $100, but at less than 4% of payroll is still a fantastic deal on workers compensation insurance as compared to states that classify workers on a per diem basis such as California.

The confusion tends to lie in two areas:

  • Contractors & Volunteers
    • Single entity contractors who do not have their own insurance are required to be covered by you. There is a form that a sole proprietor (single entity 1099 contractor) can fill out that declines coverage for themselves and that you can keep on file. However, on a film production set, workers compensation is a very valuable coverage to have. If I were making a film, I would want to pay to make sure that everybody was covered. I would not want to be in the middle of the desert, have somebody break a leg, and not know that it takes just one phone call for an air ambulance helicopter to get my person immediately to safety and get medical care, without it costing me anything.
    • Volunteers are always excluded from coverage on a work comp policy
  • Employers Liability – If a covered worker does not get coverage for their medical expenses, they have the right to sue you. A work comp policy covers your liability as an employer in this case.

Work comp has a minimum limit of $100,000 per employee in the state of New Mexico. That limit is per-year, and a multi-year work comp policy can pay out up to the maximum year after year. All work comp policies are “auditable” which means that after a year is up, or after the policy is cancelled, your bookkeeper is required to swear to an affidavit certifying what your actual total payroll was. If the actual payroll was higher than estimated, you may be invoiced. If the actual payroll is lower than anticipated, you may receive a refund. If you do not respond to the audit, you will be assessed very steep fines and you will not be able to purchase insurance from a normal/standard insurance company again; You will be forced to go to the “assigned risk” pool which carries even more fees and fines.

Work comp coverage requires that an employer be registered, or intend to register with the state unemployment office or department of labor. A federal tax ID number is required to procure a work comp policy, and a state unemployment insurance ID number is asked for. On larger productions, often a payroll service or PEO will charge you for and handle reporting of your work comp insurance. However, you can purchase work comp insurance from any business insurance agent, and may often get a lower rate than a payroll service because independent agents work with many companies.

These and other work comp issues are explained in more detail in our Work Comp category

Other Film Production Specialty Coverages

If you haven’t gone to sleep yet, there are some other specialty coverages, mostly pertaining to the exclusions previously mentioned. As for options that I have not yet mentioned above and that can be important in the film industry, you should at least be aware of the existence of coverages and endorsements for:

  • Owned Equipment Floater – covers equipment that you, the production company, owns, regardless of where it is
  • Additional Insureds – most film policies include “blanket” additional insureds for your rental houses, location owners, police departments and municipalities
  • Waiver of subrogation – the insurance company agrees not to sue someone with whom you have a contractual relationship, even if a loss was their fault
  • Animal Mortality – Death and possible loss of future earnings
  • Excess Liability – often called an umbrella, this can extend your liability coverage by up to an extra $10 million or more.
  • Valuable Papers, Accounts Receivable, Money & Securities
  • Civil Authority
  • Rental Reimbursement
  • Office Contents
  • Rented Furs, Jewelry, Art & Antiques

While beyond the scope of this article, if you have any questions for clarification on the above types of coverage, contact Sam Levy, Film Division Manager at Rio Grande Insurance.

In Conclusion

An insurance agent’s job is to understand your business, assess where the likely possibilities for loss could be, and offer you options to protect you. However, it is your job as an “insured” to analyze likely loss scenarios yourself, and yes, unfortunately, to read your policy and ask questions if you are concerned or do not understand. If you don’t get a satisfactory answer from your insurance agent, then ask to speak to the insurance company or to have an answer from an underwriter or claims specialist. Keep in mind that an insurance agent does not offer legal advice, but is trying to be your financial strategy partner.

When in doubt, ask! No question is stupid when it comes to protecting yourself.

For questions, comments or inquiries, please contact us