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And the Oscar goes to . . . an insurer?

"Best Performance by an Insurer" will not be a category in this year's 74th Annual Academy Awards show, but in the future — who knows?

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With the costs of moviemaking reaching more than $300,000 a day, insurance is now a standard component of the filmmaking process. Long gone are the days when producers put up their homes as collateral to cover delays in shooting due to bad weather or a star's illness or injury. Motion picture financiers now demand that the studios carry hefty insurance because a producer's $20 million Beverly Hills mansion is not going to cover a film budgeted at $50 million.

Types of movie insurance

According to the Insurance Information Network of California, there are four main types of moviemaking insurance:

 

Four famous claims

  • 1981: Lloyd's of London paid $2.75 million to MGM/United Artists to finish Brainstorm after the drowning death of actress Natalie Wood.
  • 1993: $5.7 million was paid to the producers of two films that were to star River Phoenix after he died of a drug overdose outside a Los Angeles nightclub.  
  • 1994: When Brandon Lee died while filming The Crow, CNA paid for script revisions, extra shooting, and special effects to complete the film.
  • 1994: $14.5 million went to the producers of Wagons East when actor John Candy died of heart failure with 20 percent of production remaining.
  • 2000: When Nicole Kidman injured her right knee during the filming of Moulin Rouge resulting in two claims for delays and a $3 million insurance loss.
  • Cast insurance: Covers any additional costs that can arise if a production loses a cast member, director, or any personnel. Cast insurance guaranteed a clean and sober Courtney Love for The People vs. Larry Flynt.

Nicole Kidman is a case in point. Kidman injured her right knee during the filming of Moulin Rouge in Australia in 2000, which resulted in two claims for delays and a $3 million insurance loss. In 2001, she quit Panic Room after three weeks of shooting because of her knee, a decision that almost resulted in the entire production being canceled and a $54 million insurance claim. Fortunately for the insurer, the producers decided to continue with a replacement actress, Jodie Foster. Still, they had to pay $7 million for the delay and additional expenses. As a result of all these claims, Kidman’s acting career was in limbo. When she was proposed as the star of Miramax’s Cold Mountain, Lloyd’s of London effectively turned her down by asking a 20 percent premium, which no insurer could afford, while Fireman’s Fund, after noting “we have really bent over backwards and taken risks on this that no one in the marketplace was willing to take,” turned down coverage on the grounds that “the major fact that can’t be changed is our paying three claims for this actress’s knees over the years.”

She ended up putting part of her salary in escrow and using body doubles for anything involving her knee.

Robert Downey, Jr. and Wynnona Ryder both lost parts in a Woody Allen film because Allen’s insurer wanted more money to back the 2 stars because of their past legal shenanigans. Picking up those 2 actors would have put Allen over the budget his backers agreed to for his movie so he had to drop both Ryder and Downey.

Another example involves the makers of Terminator 3 who insured Arnold Schwarzenegger as an "essential element" of the film, on the basis that if he dropped out at any point, the film would fail. In this event, the insurer would pay out a total bonded cost equal to the production cost, in this case over $185m.

However, Schwarzenegger completed the film, which earned $433 million internationally, allowing the film's insurers to walk away with over $4.5m. That figure falls in the typical range of 1-3% of a film's original budget. While scheduling disasters are rare, insurers point out that they do happen.

  • Errors and omissions policies: Protects production companies from lawsuits involving violation of personal rights, libel, slander, and copyright infringement. Due to the potential for extremely severe losses, especially in cases of copyright infringement, these policies may require filmmakers to consult with attorneys prior to a film's release.
  • General production insurance: Provides the standard insurance needed by any business, such as workers compensation, general liability, and commercial auto, watercraft, and aircraft insurance. It also includes costs for delays and re-shooting due to inclement weather, equipment failure, and set damage. This type of coverage insured director Sam Raimi would have a 2-inch blanket of snow for his movie, A Simple Plan.
  • Completion bonding: Guarantees that a film will be finished. Without the backing of a major studio, independent producers need the guarantee that they will have the financial means to complete a film if some unforeseen event hinders production.

Who insures the movies?

Some of the major insurers of moviemaking include AIG, Chubb Group Insurance Co., and Fireman's Fund Insurance Co., which insured this 2001’s Academy Award nominees Gosford Park, In the Bedroom, and Lord of the Rings, nominated for 13 Oscars.

Fireman's entertainment insurance division has been in business since the 1920s when the company insured mainly props and sets, according to John Kozero, a Fireman's spokesperson. In fact, Fireman's was the first company to develop the Scarface policy for actor Douglas Fairbanks Sr. This policy would pay out to the production company if Fairbanks' famous profile was injured during filming.

"It was the first insurance policy with a 1,000-rat deductible."

According to Bryan Ward, an executive underwriter with Fireman's, movie insurance runs anywhere from $1.40 to more than $2 per $100 worth of budget, depending on production costs and the risks involved during shooting, and the stakes are high. When a typhoon destroyed the sets being used in director Francis Ford Coppola's Apocalypse Now, Fireman's paid out $1.5 million in typhoon insurance. The director rebuilt the set — so it could be burned down for the film.

And insurers sometimes have to pay out of their own pockets to avoid heavy losses in potential claims, according to Kozero. When a drought struck the Midwest during the filming of Field of Dreams, producers were on the verge of filing a claim with Fireman's because the corn in the field used for crucial scenes just wasn't growing fast or high enough. So the insurance company installed a quarter million dollar irrigation system in the field to help nature along, rather than pay out millions in losses. Kozero says the corn still didn't grow "as high as an elephant's eye," so the company paid to have a trench dug in front of the field that the actors could stand in to make the corn appear taller.

Like most insurance coverage, movie insurance also has its share of deductibles. When the producers of Indiana Jones and The Last Crusade asked Fireman's to underwrite business interruption coverage regarding potential illness to the 2,000 rats who were supposed to surge through catacombs, Fireman's asked what was the least number of rats that could get sick and still allow for continued filming. "The producers said 1,000, so we agreed to underwrite them for 1,000," says Kozero. "It was the first insurance policy with a 1,000-rat deductible."

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