Originally posted in Los Angeles Daily News

Expect studio battles with insurance companies and stakeholders' lawyers regardless of when production and exhibition resume.

Hollywood studios and other major entertainment media entities are making efforts to treat the people who work for and with them decently at this point in the coronavirus crisis.

Late last week, WarnerMedia committed to contributing $100 million to a fund to help production workers sit out Warner Bros.’ many idled shows.

It was also reported that Netflix will be paying actors from their curtailed series their minimum guaranteed fees for episodes that won’t go into production until the all-clear is sounded.

In an act of solidarity with the nonworking creatives on Disney’s gazillion projects, not-yet-retired company leader emeritus Bob Iger renounced his entire salary and his recent CEO replacement Bob Chapek will only take half of his until the COVID-19 pandemic is contained.

Meanwhile, there’s hope that the government’s multi-trillion dollar stimulus package will give everyone from the industry’s out-of-work craftspeople to the furloughed employees of the nation’s shuttered movie theaters to entertainment producers large and small some compensation for all the money being lost by the production and exhibition shutdowns.

No matter what, though, lawyers and insurance companies are going to be brought in at some not too distant point as production delays inflate budgets, pushed-back release dates throttle cash flows and sped-up jumps for some theatrical films to home video release make a mess of income and talent remuneration formulas.

We asked an insurance attorney and a forensic accountant who specialize in the entertainment business what the concerns and implications are likely to be.

The most sure thing at this early stage? It’s awfully complicated.

“For the film and television industry’s productions that have been shut down, studios and producers are going to be looking at specific insurance policies that are put in place for a specific television or movie production,” explained Sarah Cronin, a partner in the law firm Venable LLP’s Century City office who specializes in entertainment and insurance recovery. “Those policies have different elements to them that will cover such things as if a set collapses or if a castmember gets sick and can no longer participate in the production. Sometimes they have what’s referred to as civil authority coverage, which could be particularly applicable right now, which is if you have a government-issued order saying people can no longer congregate and productions can no longer continue.”

It sounds like the producers of that Australian Elvis movie Tom Hanks caught COVID-19 making may have a case with their insurer. But Cronin noted that most property insurance policies have particularly excluded pandemic coverage since the SARS outbreak earlier in the century, though she hadn’t seen that particular exclusion added to production policies.

Ilan Haimoff, the partner responsible for the royalty licensing and forensics department at L.A. accounting and consulting firm GHJ, noted that his company’s audits of myriad production bibles show that all kinds of insurances get charged to shows and their participants. Which ones can be compelled to pay out on them is a matter for the lawyers, he said, and admittedly beyond his expertise.

“What will happen now that all of these productions are delayed or moved into the future?” Haimoff questioned. “Who’s going to pay for the additional incurred costs? Is it going to be the completion bond or is it going to be the various other insurance coverage they brought into the production. There’s insurance coverages that every production company gets; I know that because they charge our clients for it.”

Beside the production entities seeking to cushion their losses, other parties – loan companies, outside investors, talent whose compensation is tied to a show’s various revenue streams – may be coming at them and, by extension, their insurers with complaints.

Take, for example, not just the sped-up moving of first-run movies such as “The Invisible Man” and “Onward” to online platforms after the theatrical venues they were in closed down, but Universal’s upcoming release of the made-for-multiplexes “Trolls World Tour” on VOD instead, and Paramount’s transfer of its planned April release “Lovebirds” to Netflix.

“The general practice in our industry is to consider theatrical exhibition as the first wave of revenue coming in,” Haimoff explained. “That’s historically how it’s done. If you start messing with that and distribute the film into other media very quickly after that or at the same time, you’re moving up the home entertainment revenue stream to an earlier point in time. When you start shifting the windows like this, it might actually have an impact on how the talent is paid. Home video is primarily paid on a royalty basis. What will happen is, as you eliminate theatrical revenue and you shift that to new forms of revenue, you might only get the benefit of just the royalty.”

Lawyers for talent will likely take issue with that. Additionally, decisions made to generate some income from completed movies during this extraordinary coronavirus situation could trigger investor suits over lost profits that could have been generated if, say, more was charged for a digital rental or the studio had waited for theaters to reopen. Cronin explained that such exposure could be covered by a studio’s errors and omissions insurance policy, though such contracts aren’t usually intended to cover lost profits.

“Speaking in general and not commenting on what any individual studio did, if it’s a decision being made by any particular studio or production company essentially as a pivot of where to monetize the content on a different platform,” she added, “if somebody later sues and says that was the wrong decision, you would probably in that case look at your directors and officers liability type of policy.”

The postponed, completed films that are too big to drop on the internet for quick bucks – “A Quiet Place Part II,” Disney’s “Mulan,” the James Bond entry “No Time to Die,” Marvel’s “Black Widow,” Warners/DC’s “Wonder Woman 1984,” “Ghostbusters: Afterlife,” etc. — may never recover the millions in advertising and promotional dollars they’d already spent for their splashy spring theatrical releases. While some studios might have insurance coverage for such lost expenditures, Cronin couldn’t find any specific ones.

So, with reports that Hanks and his wife Rita Wilson are back in the States and feeling better, good chance that that Elvis movie might resume when the time comes? Probably, but that could depend on the superstar’s other obligations. That could be a problem for a number of planned or restarting movies and TV shows.

“If you move production into the future, can you still guarantee that a Brad Pitt will still be available?” Haimoff pointed out. “You can potentially lose the talent.”

Insurance could cover that eventuality. Or not. The same as with every scenario content makers and insurance companies will be wrestling over.

“Every fact situation is going to be different for a major studio,” Cronin said, using the term for the particulars of any given case. “If they had an actor that actually did get the virus during production, that’s going to be a much different analysis than if you have preemptively shut down a production because of the risk; if there is contamination because a castmember or somebody behind-the-camera had it on set, that’s going to be a different analysis.

“For major studios, for really anybody with insurance, everything is so up in the air right now,” she observed. “It’s unclear exactly how the insurance companies are going to handle these types of claims, though I think it’s likely to assume that they’re going to deny most of them. Just notify your insurance company, get it in there for future claims. Then start collecting all of your policies and really look at the language in your particular fact situation and see if there’s a potential for a claim.”

Haimoff Ilan halfbody

Ilan Haimoff

Ilan Haimoff, CPA, CIA, CFE, CFF, is the Entertainment Practice Leader at GHJ. His specialty includes profit participation and forensic accounting on behalf of talent, investors and co-producers at both the major and mini studios. Ilan has over 30 years of accounting experience in public accounting…Learn More