Communicable disease exclusions in entertainment and contingency have led to sizable losses for the film industry. Productions have been postponed or shut down completely due to the pandemic, forcing clients and brokers to rethink their approach to coverage moving forward.
“Contingency insurance is a form of business interruption, but it has more of an expansive definition and coverage,” Nellie Lindner, VP and national practice leader for film and entertainment at BFL Canada, told Insurance Business. She noted that the contingency world is much broader and encompasses coverages such as cancellation, which typically included communicable disease coverage pre-pandemic. The intent of business interruption, meanwhile, was always to cover physical loss or damage, directly or indirectly, to the premises, Lindner explained – but the threats of a virus like COVID-19 were never contemplated.
There was a breadth of coverage for perils available through contingency coverage - so if a production was interrupted, cancelled, postponed, or curtailed because of a widespread virus, the wording in a policy was broad enough to provide coverage. However, that’s not the case in today’s marketplace.
“In a soft market, you have underwriters coming from all over the place wanting to write business,” said Lindner. In this hard market, communicable disease coverage has become very limited for the film industry.
“Yes, it’s our job as brokers to find the broadest product out there for our client, but clients also need to take ownership of the fact that they declined that coverage and were fully aware about potential exposures when they decided not to buy it,” she said. “This is the mess we’re in because now coverage for communicable diseases is not available.”
Some insurance companies assess a disaster like COVID-19, look at how much the payout will change, and either put a freeze on the policy or exit the market altogether, according to Lindner. Other insurers choose to assess whether to continue underwriting, if policy restrictions are needed and if it is necessary to exclude any exposures, such as COVID-19, that are brand new and need more risk management research.
Lindner explained that while civil authority and cancellation coverage is currently available for film and entertainment companies, there are still exclusions for communicable diseases. Contingency budgets are rarely big enough to cover a communicable disease claim, so many production companies lose millions. If a production was forced to shut down a week into filming, and had coverage in place, the company would not usually see a notable loss of money. However, halfway through a production is when the losses get bigger because there are so many factors involved, such as key actor contracts and location rentals.
“It’s a snowball effect,” she explained. “It starts small but once you go through the pandemic, the insurance company claim that started off on one level has just increased.”
Lindner still has several insureds that haven’t received a finalized payment. Eighteen months into the pandemic there are still open claims as all the information has not come in from insurance companies and clients are still assessing what their final damages are.
“It’s going to be least another year before all of the COVID claims are closed,” she said.
The government has stepped in during the last year and put together funds to offer the telefilm industry, but Lindner believes that will all come to an end soon because there is only so much money available.
Captives are also being set up as an alternative risk solution but, Lindner noted, the captive rate is 6-10% higher than a mainstream rate and comes with a deductible which is not typically within the budget of many production companies that have already seen major losses.
With limited communicable disease coverage available, the best thing the film and entertainment industry can do right now is follow social distancing and sanitary guidelines, conduct rapid testing, and only keep essential personnel on set.
“As far as mitigation for brokers, it’s staying on top of the evolving changes, considering threats of new variants and educating clients if there’s a new product or if an underwriter is willing to offer them a small percentage of communicable disease,” Lindner added.
“All we can do is be on the forefront and proactively seek out what’s available,” she said.