Could Studios See Production Slowdowns as Pandemic Insurance Policies Expire?

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Brevht Vandenbroucke for Variety

Making movies has never been for the faint of heart. But during a global pandemic, it’s a white-knuckle experience that tests the intestinal fortitude of producers and studios with an appetite for putting it all on the line.

“It’s a delicate equation that you have to calculate,” says Glen Basner, founder of FilmNation, the producer of “Promising Young Woman” and 2016’s “Arrival.” “You have to factor in the risk of total abandonment of your movie if key talent gets sick versus the benefits of being able to create content at a time when few others are doing that. It’s all about weighing risk versus reward.”

A few companies that locked in their umbrella insurance policies before the coronavirus upended the world remain covered in the event that their star or director contracts COVID-19 or, in the worst-case scenario, dies from the disease. Numerous executives and sales agents, however, have been worrying out loud that these policies will come up for expiration in 2021 at active production shops including Netflix, Amazon and MGM, to name a few. Renegotiating terms to include COVID-19 coverage could come at a devastating expense, the insiders say, even for deep-pocketed streamers, which could cause a dramatic slowdown in filming,

“We’re really hopeful there is going to be a vaccine super quick, because once those places lose their insurance, it will be much more difficult to get movies made,” says one top sales agent.

Representatives for Amazon, Netflix and MGM had no comment on the matter. An individual familiar with Netflix says the company’s policy already underwent changes this year, and the new policy would not result in any production slowdowns.   

Some production hubs, such as the United Kingdom, Germany and France, have created backstops to help film shoots in the event of an outbreak. However, in the United States many movies are going into production without much of a financial safety net should the coronavirus force their sets to shut down indefinitely. Policies that cover pandemics are not readily offered, or come at such a high cost that they are unattainable, particularly for indie productions. There’s not much hope that the federal government, which is deadlocked over the prospect of offering more of a fiscal stimulus, will find the wherewithal to untangle these issues. Some new companies have entered the fray, offering insurance plans that cover the coronavirus and shutdowns related to communicable disease, but have low limits to the amount of coverage available and carry high premiums.  

The difficulty of getting adequate insurance is creating a yawning chasm in the kinds of projects that are getting made. On one end of the divide are massive tentpole films such as “Jurassic World: Dominion” and “The Batman.” They carry hefty price tags but benefit from the backing of sprawling conglomerates that can better absorb a financial disaster if, say your Dark Knight gets sick, as Robert Pattinson, the actor donning the cowl in this installment of the comic book franchise, did last September.

“There’s a group of filmmakers and television creators who are working for companies with deep pockets and market caps of billions of dollars,” says Brian Kingman, managing director of the entertainment practice at Arthur J. Gallagher. “Those projects are immune to these issues because the companies have balance sheets that allow them to have that kind of exposure.”

Not everyone has those kinds of resources. On the other side of the gap are lower-budget films that cost less than $10 million, which limits the financial exposure of the producers and companies putting up the money should disaster strike.

“We’ve figured out workarounds at a time where there’s really no clear and concise form of insurance,” says Elsa Ramo, an attorney at Ramo Law.

Some of these indie films have decided not to insure their casts at all, which, in turn, impacts their ability to secure completion bonds from commercial banks. That would have been unthinkable before COVID-19 struck, but now it is deemed an acceptable risk.

Others have preferred to have some coverage and instead opted to buy what is called “essential element insurance” that covers a director or star.  It’s costly, with prices that can reach up to 12% of the budget with high deductibles, but it provides some sort of stopgap for projects looking to avoid being abandoned entire–ly should someone fall ill. This form of insurance often requires the talent being insured to test for COVID before they receive coverage and mandates that they agree to a strict regime of testing through
out the production. Some even specify which tests are acceptable, with certain carriers dictating that insured actors use nasal tests as opposed to oral ones, which aren’t considered to be as reliable. Going forward, some legal experts think that people will need to provide proof of vaccination or show that they have antibodies in order to get covered.

Even companies or productions that were in effect grandfathered into enjoying pandemic insurance are facing obstacles when it comes to collecting. In September, the producers of the upcoming Ben Affleck film “Hypnotic” filed a lawsuit accusing their insurance company of refusing to extend their policy to account for delays related to the pandemic. Other producers and companies that have sought payouts say they expect there will be legal challenges.

Going forward, insurance experts say that the kind of umbrella policies that covered shutdowns or delays related to communicable diseases may never be widely available. Post-COVID, companies have become all too painfully aware of the financial devastation that can be wreaked by a pandemic. And that’s made insurers concerned about their level of exposure the next time a world-changing virus appears.

“After the pandemic, most policies are going to have a pandemic, epidemic, communicable disease exclusion on a move-forward basis,” Kingman says.

Given all the costs and risks associated with shooting a movie or television show during a raging public health catastrophe, why bother to call “Action!” in the first place?

The simple answer is money. The rewards for the producer able to successfully navigate the insurance pitfalls can be substantial. The entertainment business lost months to the virus as shutdowns brought production to a standstill. They’re stockpiling completed films and shows as a way of riding out the lean periods when the impact of those delays is most keenly felt. That’s resulted in several eye-popping deals. Last fall, Netflix shelled out $30 million for “Malcolm & Marie,” a low-budget drama with John David Washington and Zendaya that was completed during lockdown. Sellers believe those kinds of prices are here to stay.

“Companies are hungry for content,” says Basner. “Streamers are particularly eager to buy stuff, and they’re willing to acquire them at high levels. Everything is selling at a premium because there were so few movies and shows created in the past nine months.”