Part Three in an Amazing Series on Production Insurance by Sam Levy of Rio Grande Insurance

Insurance options for multiple projects and the entertainment industry

by: Sam Levy, Rio Grande Insurance www.riograndeins.com

In the last two issues of Movie News, 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 in November 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 cancellation, 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 17^th 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.

Send inquiries to sam@riograndeins.com

Sam Levy is the Film Insurance division manager at Rio Grande Insurance, www.RioGrandeIns.com
Providing superior service from Green light 'til Wrap, for all your production insurance needs, including: Single and Annual Production policies, Liability, Producer’s Risk, Rented equipment, Errors & Omissions, Work Comp, Directors & Officers, Hired and non-owned auto; Blanket additional insureds. All premiums count for 25% NM rebate.

14 local offices in NM, CA, AZ & UT.

1231 South St. Francis Dr Ste A, Santa Fe, NM 87505

Toll-Free: 888-447-8216; Phone: 505-984-8216; Fax: 505-984-8238

E-mail: sam@riograndeins.com

Video on Production Insurance Services Provided by DeWitt Stern

DeWitt Stern is one the newest businesses listed on crewnewmexico.com.They provide Insurance and Risk Advisory services for Hollywood's largest studios, productions, and talent - and are now reaching out to New Mexico productions.

Here's a video featuring Peter Marshall, Senior VP and Coordinator Motion Picture, TV and New Media for DeWitt Stern.

Co-Production Insurance Scams - Are You Really Insured?

Don't Lose Your House!

Is Your Production Actually Insured?

A Warning on Co-Production Agreements a.k.a. Sub-Selling Scams

A special contribution to the New Mexico Film Blog by Sam Levy, Rio Grande Insurance

Many organizations and educational institutions offer paper-only co-production arrangements that seem to have a number of benefits to producers. One of those benefits can be presented as low or no cost production insurance.

It's not easy for producers to keep everything on time and on budget. Between making deals on everything from funding to distribution, film insurance can seem like a high expense that you'll never really need, especially for smaller productions.

However, saving dollars on production insurance can in fact risk the loss of your home, your savings, and 75% of every paycheck forever. One great way to lose it all is to be duped into a Sub-Selling Scam. Here's how it works:

1. A production company is established with the intent of “co-producing” projects with first-time or up-and-coming filmmakers. That can include festival projects, education institution related projects and just about every other small production out there.

2. The production company purchases an annual insurance policy (liability, property/equipment, producers risk, auto, workers comp, etc.).

3. This policy is then “sub-sold” to the other filmmakers under the guise of a “co-production” arrangement, often nothing more than a signed piece of paper, a check and a listing in the credits of the production.

4. The agreement between the production company (sub-seller) and the filmmaker may appear to be a legitimate co-production. However, the arrangement is really nothing more than a scheme to disguise fees charged by the sub-seller for “riding” on an insurance policy.

5. The production company (sub-seller) is not licensed to sell insurance, the project of the first-time filmmaker is not (specifically) declared to the insurance company, the "premium" is kept by the sub-seller, and the entity that was sub-sold has no "insurable interest." In essence, funds were paid for no protection.

The California Department of Insurance (DOI) has recently ruled clearly against this type of film industry co-production arrangement with an official cease and desist order against "sub-selling scams" of insurance, clarifying the offense as the illegal misrepresentation and theft of premium by a non-licensed solicitor.

The core offense was already illegal in all states, and this order simply clarifies why.

Consider for a moment what production insurance is trying to do:

Either a) cover the cost of completing a production or assets of the producers in case something just happens to go wrong (entertainment package, including property), or b) cover the liability due to negligence of people acting on the part of the production (liability).

One important factor with the entertainment package is a term that insurance companies use called "insurable interest." Insurable interest in something is when loss or damage to that thing would cause the entity named in the policy (the Insured) to suffer a direct financial loss (or some other specific kinds of loss). The important point is that the entity who buys an insurance policy must have an insurable interest in what they are insuring.

The overall chances that something will go wrong, causing an insurance claim, with your production are quite low. However, that's not a valid reason to try and look for a lower cost loophole in the production insurance system. Insurance premiums are priced according to the average occurrence of claims and the average cost of those claims. By trying to ride on someone else's policy at low or no cost, you may effectively be creating a mechanism that gets you low or no protection.

The concerns arising from these sub-selling scams

1. Insurance is being sold by an entity that is not licensed by the DOI.

2. The sub-sellers illegitimately act as underwriters (without authority), determining which risks they will “cover.”

3. The price charged by the production company is designed to significantly undercut the legitimate markets.

4. Claims may be denied by the carriers due to no insurable interest, no prior declaration, no material involvement and no underwriting review. This places both the end purchaser of this phony coverage and the public at risk.

5. The expertise and marketing efforts of licensed brokers with professional experienced are being undercut by these schemes.

Quantifying the loss

Each year, thousands of “insurance risks” (policies) that would otherwise go to the legitimate market are lost to sub-sellers. That causes direct damage to the “averaged” premium system, raising premiums and expenses for all of the legitimately insured productions.

Now, the above ruling from the DOI does not declare any new rules or procedures with regards to co-production sub-selling. What is described above was a violation before any ruling was issued - it's not a recent change or addition to state insurance laws. However, there may have been some unfortunate grey area misperceptions, which were not necessarily direct or deliberate malfeasance.

As you’ve probably heard before, not knowing that something is illegal is not an acceptable excuse for committing a crime. If another entity is a valid funder or partner in producing a production, then name them as another producer and move forward with a sole and separate policy for that single production. The only entities that can insure multiple productions are those that use the same people & same equipment to themselves make several very small productions throughout the course of a year, such as a small mini-documentary filmmaker or corporate image or video production companies.

Co-production organizations that do this "sub-selling" (like COMPLEX, named in the California order) may be operating under some kind of "don't ask/don't tell" or misinterpretation assumptions. They may or may not in fact know that what they're doing has a level of risk that's not truly or legally acceptable to insurance companies or able to be guaranteed by the state department of insurance. They likely have never heard the term “insurable interest.”

The full text of the order from the DOI can be seen online at: http://www20.insurance.ca.gov/epubacc/ORDER/117089.htm

This order is enforcement of the existing laws which allow and require only state-licensed insurance agents, brokers and companies to make a determination on who or what can be insured, for how much premium and to guarantee that the coverage actually is valid. This same law exists in every state, including New Mexico, Arizona and California.

The core problem, and where the illegality applies is that when a production company sub-sells insurance from the larger policy that they hold, all of a sudden that FILM production company is now acting as an INSURANCE company - they are evaluating and assuming new risks, doing their own “underwriting,” (evaluation of the average monetary value of the level of risk of a given enterprise) collection premium and otherwise insuring a production which really is not their own.

Film production companies are not insurance companies, and are not licensed (for good reason!) to make these kind of business decisions, and are certainly not authorized to make those decisions on behalf of the funds of the underlying insurance company!

The correct way, if there were a true collaborative production agreement between the production company and the sub-production, would be for the production company to revise all of their information and submit a new application for either a single production or a scheduled “slate” of defined productions (that they will actually be materially involved with) with their insurance company, who in turn would review all of the new production information and make a determination about whether they wanted to insure the new production, and if so, at what rates with what requirements.

Only insurance companies are capable and licensed to make that kind of determination. The determination of the insurability risk of a company is made based on many factors, including the experience of the principals, the length of time the company has existed, the operating revenues, number & type of productions made annually, sample scripts & budgets, prior coverage & claims. The insurance company evaluates these things before issuing an insurance policy.

When all of a sudden you throw unknown/new producers, directors and financiers into the picture, whom the insurance company has not reviewed, you're creating a large problem question of WHO was insured, and who was approved by whom. When it comes to incidents and claims, obviously an insurance company can deny claims for exactly this reason - that it wasn't an operation and/or operators whom they had approved - and in fact never even knew about or had a chance to review.

From the DOI online examples, the above described practice is almost exactly similar to misrepresentation and theft of premium by a non-licensed solicitor. http://www.insurance.ca.gov/contact-us/0200-file-complaint/index.cfm

What's being exposed with the cease and desist order is the current loophole/don't ask/misinterpretation practice of a larger entity claiming that they make a large number of productions with a large number of production partners each year, and those larger companies having heard from their insurance companies something along the lines of "you don't need to tell us about each production you're making, we insure all of your operations," and then those companies are entering into what are really non-material-involvement co-production on-paper-only agreements where they are a partner just in name/credits, but not truly involved in making the production as their own.

And therein lies the ultimate nightmare where this problem could end up - someone THINKS that they are buying co-production (sub-sold) insurance, but in the event of a claim are likely to be denied - meaning that they are not insured at all and never were - because they're buying something that doesn't exist from someone who isn't authorized to sell it. At the end of the day, if the production isn't covered and claims aren't paid, you the producer are in for a very substantial financial and legal hardship.

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Coming up next time: Can you really predict the future? Also… even the most comprehensive insurance only covers a small number of things. Find out what.

Send questions or comments to sam@riograndeins.com

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Sam Levy is the Film Insurance division manager at Rio Grande Insurance, www.RioGrandeIns.com
Providing superior service from Green light 'til Wrap, for all your production insurance needs, including: Single and Annual Production policies, Liability, Producer’s Risk, Rented equipment, Errors & Omissions, Work Comp, Directors & Officers, Hired and non-owned auto; Blanket additional insureds.

All premiums count for 25% NM rebate.

14 local offices in NM, CA, AZ & UT.

1231 South St. Francis Dr Ste A,

Santa Fe, NM 87505

Toll-Free: 888-447-8216

E-mail: sam@riograndeins.com

Phone: 505-984-8216

Fax: 505-984-8238