A Production Lawyer's Guide to Obtaining E&O Insurance and Preventing Litigation

Errors-and-omissions insurance (also known as 'E&O' or producers liability insurance) is an inevitable part of every film and TV producer's life. It is required for the sale and distribution of virtually all film productions and television shows in North America ' and the requirement is becoming global. Expensive copyright, defamation and related claims involving film productions and television shows make E&O insurance protection important to producers, distributors and exhibitors. This is because litigation costs can be astronomical even when a claim is not valid. Obtaining E&O insurance, therefore, has become a crucial part of the film and television production process.

This article discusses what is, and is not, covered by E&O insurance. It also examines clearance procedures developed over many years of expensive mistakes by producers. Each of these clearance procedures has developed because it prevents claims and litigation. The goal of the article is to allow production counsel to spot the issues and to develop a sense of what is risky or not in the course of bringing a film or television production to fruition.

Check the Coverage

There are many misunderstandings about what E&O policies cover. E&O policies provided by different carriers are quite similar, but they are not identical. Thus, even if they do not have any claims looming on the horizon, producers and their lawyers should look at their policies to make sure they understand at least the basic coverage and exclusion provisions. (They should also acquaint themselves with requirements for matters such as giving notice to the insurance company once a claim comes in, and for limitations on their communications with claimants.)

E&O policies generally cover claims of copyright infringement, defamation, implied-in-fact contract (and related claims such as misappropriation), invasion of privacy, right of publicity and unfair competition. Sometimes, producers wishfully assume that any kind of error they make will be covered by the E&O policy. However, the policy is designed only for a very limited set of claims. If the claim is not of the type discussed above, then it probably is not covered. Certain matters that are not covered deserve specific mention here.

Claims against the production company by partners, independent contractors, employees and the like are not covered by E&O policies. Furthermore, contract-related claims against the producer are not covered. (The implied-in-fact contract claims mentioned earlier are the only contract cases that are covered, but this is a narrow exception to the rule of non-insurability of contract disputes.) Thus, if a writer, or underlying book author, sues because the producer supposedly breached some aspect of his or her contract, the E&O policy will not help. This is true even if the writer alleges copyright infringement by the producer in relation to the contract dispute.

E&O policies will not cover a claim where a producer knowingly violated the rights of another. Also, these policies do not cover fraudulent acts against others.

Losses Not Covered

Keep in mind that E&O policies are designed to cover damages that the producer causes to others and the costs of defending against claims by others. The policies are not meant to cover the production's own losses. Thus, if someone gets an injunction against a film, the film's policy will not cover lost profits or production costs. (Some policies may cover advertising and related promotional costs, however.) The policy will also not cover any punitive (exemplary) damages awarded to a plaintiff. As noted above, check the coverage and exclusions on your client's specific E&O policy as there are variations among policies.

It is crucial that the producer understand that when he or she fills out an application for E&O insurance, the producer is making representations to the insurer that form the basis for its agreeing to insure the project. A producer who does not respond to the application's questions and instructions accurately jeopardizes the ability to depend on that policy if a claim does arise.

Many clearance procedures require a line-by-line look at the script. Those will be described in Parts Two and Three of this article. But there are a number of more general issues that the producer and lawyer should consider from the beginning of development of a project.

Some Suggestions

First, keep around a copy of an E&O application for review. The individual questions and the 'clearance procedures” sections of these applications make very good checklists for many of the steps that a production company and its counsel should take. A lawyer should remind a production client that E&O insurance is unique: It requires that the producer's attorney be directly involved in the clearance process, and that this attorney be able to knowledgeably answer questions about the show's clearance procedures if contacted by the insurer's own lawyers.

The lawyer should read the script early in development, especially if the project involves real people or events, or if it includes controversial matter, parodies, clips or other references to, or use of, pre-existing materials. If there is no script yet, or if the project is a documentary, the producer should give the lawyer a detailed outline as early as possible. In my experience, early involvement of a lawyer on E&O issues is an excellent application of the old adage: 'An ounce of prevention is worth a pound of cure.'

Make sure your clients are realistic in budgeting for E&O insurance and legal fees to clear projects. Get them to set aside contingency funds in case there are problems. This is especially true with docudramas, investigative documentaries, parody, satire, and shows that involve lots of music and clip licensing ' but it can apply to any kind of project. After a certain stage, no E&O insurance means no more money from your client's funding sources. Two days before principal production starts is no time to find out that your project has enough risks in it that the insurer has tripled the expected premiums, or that your client needs to rewrite key portions of the script in order to get any insurance at all. Of course, the legal-fee meter is also ticking during all of this process, which only makes matters worse.

Try to give your clients some breathing room in the E&O coverage requirements in their contracts with distributors, broadcasters and others who require that the producer obtain this insurance. Often, insurers and their lawyers think that some aspect of a project is too risky to insure at all, or they are only willing to cover the risk with a higher deductible or extra premiums, which they will offer to the producer. In some cases, producers would be happy to accept an increased deductible (above the common $10,000 or $25,000 per claim deductibles), rather than pay the extra premium. However, form contracts from distributors and other financiers often demand anachronistically low deductibles, and those contracts also require that there be no non-standard exclusions or special deductibles. The producers are forced by the distribution contracts to pay an increased premium that is not in their budget in order to buy down the deductible. Often, everyone would be better off if the risk could be shared through a higher deductible or another creative approach. Try for the contractual option to provide a distributor with a policy with at least a $25,000 or $50,000 deductible. If the producer gets a clean policy with a low deductible, so much the better.

Talk to the Insurer

Contacting the insurer early to discuss E&O can also be important in helping head off problems before it is too late. (Contact your client's insurance broker to arrange this.) While the majority of productions obtain their insurance without any real difficulties, some projects need considerable review by the insurer and its counsel before they can be accepted. This review sometimes leads to script changes, or the need for new releases or contract revisions. The producer may need to budget for additional legal fees, the costs of getting new releases, extra premiums and so on. Also, many changes are quite simple if made before shooting begins (such as changing the name of a character), but they are much more difficult if the need for the change is discovered later.

Warn your clients against being penny-wise and pound-foolish by waiting to purchase E&O policies until the last possible moment. I recommend that the policy be in place before any publicity or press releases on the show, and certainly before any real money is spent on preproduction or production. Claims frequently come in well before a production is finished because publicity about the project often stirs up potential plaintiffs. If the policy is not already in place when the producer is first made aware of the claim, that claim will not be covered. (You should not wait to ask for flood insurance until after the river next to your house overflows its banks. Likewise, a producer cannot expect an insurer to offer coverage on an E&O claim that already has been threatened.) Most distributors will not accept E&O policies with any sort of special exclusions on them, so even small claims made prior to the purchase of a policy can turn into big problems.

Register Copyright

Get a copyright report on any book, play or other underlying work that the producer is acquiring, and get one on any script or treatment that was not written as a work for hire by the production company's own personnel. A 'copyright report' (or 'copyright search') lists all copyright registrations, assignments and other relevant documents that are recorded in the copyright office of the country in question. These copyright reports are important because they tell producers about any conflicting assignments that hinder or destroy their right to use the underlying work. Not many owners will deliberately try to defraud a producer, but they may not have fully understood previous option agreements or other contracts, or co-owners of the rights may already have assigned film and TV rights to someone else. The production attorney should not hesitate to use an outside copyright expert if the report is not obviously clean

A smart producer ought to get a copyright report (if the project was not created in-house) before he or she buys the rights, but certainly before obtaining E&O insurance. Ten days before filming starts is not the time to learn that your client does not have priority of rights over some other transferee. While it is very rare, I personally have seen productions shut down because of this problem. Furthermore, once the assignment of film/TV rights to the underlying work is obtained, the producer or lawyer should register that assignment. The registration process is cheap and easy, and it prevents someone who has conflicting rights from establishing a priority of rights by beating the producer to the recording procedure.

Secure Title

Get a title report once the project's title is chosen. Title coverage is normally free under an E&O policy, but it will not be offered without a recent title report for the insurance company's lawyer to review and approve. Title reports list all previous uses of the same or similar titles, regardless of who owns those other works. The reports are obtained to uncover potential legal claims of unfair competition ('passing off') from a prior user of that same title. That prior user can allege that the public associates this title with his or her film, book, etc., and that your client is misleading the public as to the origins of the client's project. (Because titles are seldom protected under copyright law, copyright is not the relevant legal theory here.) Interpreting legal rights and risks in relation to others' use of the title can be a specialized skill, so you may want to have your client obtain an expert's legal opinion as to the safety of the title. (Insurance counsel may occasionally disagree with the production lawyer or the outside title expert about the safety of a particular title, so get your client to submit the title report to the insurance company as soon as possible once you are satisfied.)

Many producers confuse title reports with copyright reports. These reports contain some overlapping information, but they are two different animals. Copyright reports cover previous rights transfers and records, and thus they reveal problems in the 'chain of title' to the underlying material your client has bought. However, title reports look at any uses of the same or similar titles, without regard to whether there is any connection between those other films, books, songs, etc., and the producer's own project. Title reports deal with the risk of public confusion about name of a project, whereas copyright reports deal with who is currently the proper owner of the rights to a copyrighted work.

Know Orgin of Work

Early in the project's development, ask the producer, production staff, co-producers, directors, writers and even the major stars, whether any of them has ever received any story ideas or scripts that are similar to the project being developed. These kinds of submissions are what create copyright and implied-in-fact contract claims. Ask them if they know of any books, films or other creative works that inspired this project or that have noteworthy similarities. If you can spot a potential problem early enough, you can help your client fix it before it becomes a serious problem.

Look early and look carefully at the origins of the story for the film or TV production. Is it based on real events? Even indirectly? The lawyer should talk directly to the screenwriter or the concept's creator. Talk to the author of the underlying work, if there is one. Virtually every creative work draws upon the personal experiences of its author or actual events that interested him or her. If the story openly involves real-life events, then it is a docudrama, with all its attendant clearance issues. If the parallels to real events are less obvious, are there nonetheless certain characters who would be recognizable to friends or acquaintances? Are these portrayals possibly insulting? What script changes can you make to prevent problems? Often, fact-based projects that are highly fictionalized are more difficult to deal with than those that are openly docudramas. Don't let your clients get hung up on the question of whether something is truly a 'docudrama.' Just make them focus on the consequences of anyone recognizing the real events and people underlying the story.

Don't Forget Companion Materials

A final warning among the general clearance guidelines for all productions: Plan early for rights and clearances for companion materials and for all relevant forms of internet/digital distribution. Companion materials can include Web sites, soundtracks, 'making of' documentaries, commentary tracks on DVDs, merchandising tie-ins, video games and books. Some insurers will extend coverage under the basic E&O policy to include companion materials, usually for a fee. New forms of distribution include Internet streaming and downloading ('Webcasting,' 'mobisodes,' etc.). Make sure that contracts include all the potentially necessary rights for such uses. Personal releases or copyright licenses may have scope of use or territorial limitations that are not compatible with the producer's and distributor's hoped-for internet uses or, for example, possible video games or merchandise.

Also make sure that the client keeps legal counsel fully in the loop about the companion materials before, during, and after production. Due diligence obligations for the production include making sure that companion materials are properly cleared and vetted by counsel to avoid causing claims on the production itself. (Consider, for example, the interview in the 'making of' documentary that names the real person who was carefully disguised in the show itself.) Also, it may be prudent to require that Web developers provide proof of insurance to protect the producer if the Web site created for the show contains infringing materials.

Part Two of this article, coming next month, continues the discussion of clearance procedures and provides specific examples.

Errors-and-omissions insurance (also known as 'E&O' or producers liability insurance) is an inevitable part of every film and TV producer's life. It is required for the sale and distribution of virtually all film productions and television shows in North America ' and the requirement is becoming global. Expensive copyright, defamation and related claims involving film productions and television shows make E&O insurance protection important to producers, distributors and exhibitors. This is because litigation costs can be astronomical even when a claim is not valid. Obtaining E&O insurance, therefore, has become a crucial part of the film and television production process.

This article discusses what is, and is not, covered by E&O insurance. It also examines clearance procedures developed over many years of expensive mistakes by producers. Each of these clearance procedures has developed because it prevents claims and litigation. The goal of the article is to allow production counsel to spot the issues and to develop a sense of what is risky or not in the course of bringing a film or television production to fruition.

Check the Coverage

There are many misunderstandings about what E&O policies cover. E&O policies provided by different carriers are quite similar, but they are not identical. Thus, even if they do not have any claims looming on the horizon, producers and their lawyers should look at their policies to make sure they understand at least the basic coverage and exclusion provisions. (They should also acquaint themselves with requirements for matters such as giving notice to the insurance company once a claim comes in, and for limitations on their communications with claimants.)

E&O policies generally cover claims of copyright infringement, defamation, implied-in-fact contract (and related claims such as misappropriation), invasion of privacy, right of publicity and unfair competition. Sometimes, producers wishfully assume that any kind of error they make will be covered by the E&O policy. However, the policy is designed only for a very limited set of claims. If the claim is not of the type discussed above, then it probably is not covered. Certain matters that are not covered deserve specific mention here.

Claims against the production company by partners, independent contractors, employees and the like are not covered by E&O policies. Furthermore, contract-related claims against the producer are not covered. (The implied-in-fact contract claims mentioned earlier are the only contract cases that are covered, but this is a narrow exception to the rule of non-insurability of contract disputes.) Thus, if a writer, or underlying book author, sues because the producer supposedly breached some aspect of his or her contract, the E&O policy will not help. This is true even if the writer alleges copyright infringement by the producer in relation to the contract dispute.

E&O policies will not cover a claim where a producer knowingly violated the rights of another. Also, these policies do not cover fraudulent acts against others.

Losses Not Covered

Keep in mind that E&O policies are designed to cover damages that the producer causes to others and the costs of defending against claims by others. The policies are not meant to cover the production's own losses. Thus, if someone gets an injunction against a film, the film's policy will not cover lost profits or production costs. (Some policies may cover advertising and related promotional costs, however.) The policy will also not cover any punitive (exemplary) damages awarded to a plaintiff. As noted above, check the coverage and exclusions on your client's specific E&O policy as there are variations among policies.

It is crucial that the producer understand that when he or she fills out an application for E&O insurance, the producer is making representations to the insurer that form the basis for its agreeing to insure the project. A producer who does not respond to the application's questions and instructions accurately jeopardizes the ability to depend on that policy if a claim does arise.

Many clearance procedures require a line-by-line look at the script. Those will be described in Parts Two and Three of this article. But there are a number of more general issues that the producer and lawyer should consider from the beginning of development of a project.

Some Suggestions

First, keep around a copy of an E&O application for review. The individual questions and the 'clearance procedures” sections of these applications make very good checklists for many of the steps that a production company and its counsel should take. A lawyer should remind a production client that E&O insurance is unique: It requires that the producer's attorney be directly involved in the clearance process, and that this attorney be able to knowledgeably answer questions about the show's clearance procedures if contacted by the insurer's own lawyers.

The lawyer should read the script early in development, especially if the project involves real people or events, or if it includes controversial matter, parodies, clips or other references to, or use of, pre-existing materials. If there is no script yet, or if the project is a documentary, the producer should give the lawyer a detailed outline as early as possible. In my experience, early involvement of a lawyer on E&O issues is an excellent application of the old adage: 'An ounce of prevention is worth a pound of cure.'

Make sure your clients are realistic in budgeting for E&O insurance and legal fees to clear projects. Get them to set aside contingency funds in case there are problems. This is especially true with docudramas, investigative documentaries, parody, satire, and shows that involve lots of music and clip licensing ' but it can apply to any kind of project. After a certain stage, no E&O insurance means no more money from your client's funding sources. Two days before principal production starts is no time to find out that your project has enough risks in it that the insurer has tripled the expected premiums, or that your client needs to rewrite key portions of the script in order to get any insurance at all. Of course, the legal-fee meter is also ticking during all of this process, which only makes matters worse.

Try to give your clients some breathing room in the E&O coverage requirements in their contracts with distributors, broadcasters and others who require that the producer obtain this insurance. Often, insurers and their lawyers think that some aspect of a project is too risky to insure at all, or they are only willing to cover the risk with a higher deductible or extra premiums, which they will offer to the producer. In some cases, producers would be happy to accept an increased deductible (above the common $10,000 or $25,000 per claim deductibles), rather than pay the extra premium. However, form contracts from distributors and other financiers often demand anachronistically low deductibles, and those contracts also require that there be no non-standard exclusions or special deductibles. The producers are forced by the distribution contracts to pay an increased premium that is not in their budget in order to buy down the deductible. Often, everyone would be better off if the risk could be shared through a higher deductible or another creative approach. Try for the contractual option to provide a distributor with a policy with at least a $25,000 or $50,000 deductible. If the producer gets a clean policy with a low deductible, so much the better.

Talk to the Insurer

Contacting the insurer early to discuss E&O can also be important in helping head off problems before it is too late. (Contact your client's insurance broker to arrange this.) While the majority of productions obtain their insurance without any real difficulties, some projects need considerable review by the insurer and its counsel before they can be accepted. This review sometimes leads to script changes, or the need for new releases or contract revisions. The producer may need to budget for additional legal fees, the costs of getting new releases, extra premiums and so on. Also, many changes are quite simple if made before shooting begins (such as changing the name of a character), but they are much more difficult if the need for the change is discovered later.

Warn your clients against being penny-wise and pound-foolish by waiting to purchase E&O policies until the last possible moment. I recommend that the policy be in place before any publicity or press releases on the show, and certainly before any real money is spent on preproduction or production. Claims frequently come in well before a production is finished because publicity about the project often stirs up potential plaintiffs. If the policy is not already in place when the producer is first made aware of the claim, that claim will not be covered. (You should not wait to ask for flood insurance until after the river next to your house overflows its banks. Likewise, a producer cannot expect an insurer to offer coverage on an E&O claim that already has been threatened.) Most distributors will not accept E&O policies with any sort of special exclusions on them, so even small claims made prior to the purchase of a policy can turn into big problems.

Register Copyright

Get a copyright report on any book, play or other underlying work that the producer is acquiring, and get one on any script or treatment that was not written as a work for hire by the production company's own personnel. A 'copyright report' (or 'copyright search') lists all copyright registrations, assignments and other relevant documents that are recorded in the copyright office of the country in question. These copyright reports are important because they tell producers about any conflicting assignments that hinder or destroy their right to use the underlying work. Not many owners will deliberately try to defraud a producer, but they may not have fully understood previous option agreements or other contracts, or co-owners of the rights may already have assigned film and TV rights to someone else. The production attorney should not hesitate to use an outside copyright expert if the report is not obviously clean

A smart producer ought to get a copyright report (if the project was not created in-house) before he or she buys the rights, but certainly before obtaining E&O insurance. Ten days before filming starts is not the time to learn that your client does not have priority of rights over some other transferee. While it is very rare, I personally have seen productions shut down because of this problem. Furthermore, once the assignment of film/TV rights to the underlying work is obtained, the producer or lawyer should register that assignment. The registration process is cheap and easy, and it prevents someone who has conflicting rights from establishing a priority of rights by beating the producer to the recording procedure.

Secure Title

Get a title report once the project's title is chosen. Title coverage is normally free under an E&O policy, but it will not be offered without a recent title report for the insurance company's lawyer to review and approve. Title reports list all previous uses of the same or similar titles, regardless of who owns those other works. The reports are obtained to uncover potential legal claims of unfair competition ('passing off') from a prior user of that same title. That prior user can allege that the public associates this title with his or her film, book, etc., and that your client is misleading the public as to the origins of the client's project. (Because titles are seldom protected under copyright law, copyright is not the relevant legal theory here.) Interpreting legal rights and risks in relation to others' use of the title can be a specialized skill, so you may want to have your client obtain an expert's legal opinion as to the safety of the title. (Insurance counsel may occasionally disagree with the production lawyer or the outside title expert about the safety of a particular title, so get your client to submit the title report to the insurance company as soon as possible once you are satisfied.)

Many producers confuse title reports with copyright reports. These reports contain some overlapping information, but they are two different animals. Copyright reports cover previous rights transfers and records, and thus they reveal problems in the 'chain of title' to the underlying material your client has bought. However, title reports look at any uses of the same or similar titles, without regard to whether there is any connection between those other films, books, songs, etc., and the producer's own project. Title reports deal with the risk of public confusion about name of a project, whereas copyright reports deal with who is currently the proper owner of the rights to a copyrighted work.

Know Orgin of Work

Early in the project's development, ask the producer, production staff, co-producers, directors, writers and even the major stars, whether any of them has ever received any story ideas or scripts that are similar to the project being developed. These kinds of submissions are what create copyright and implied-in-fact contract claims. Ask them if they know of any books, films or other creative works that inspired this project or that have noteworthy similarities. If you can spot a potential problem early enough, you can help your client fix it before it becomes a serious problem.

Look early and look carefully at the origins of the story for the film or TV production. Is it based on real events? Even indirectly? The lawyer should talk directly to the screenwriter or the concept's creator. Talk to the author of the underlying work, if there is one. Virtually every creative work draws upon the personal experiences of its author or actual events that interested him or her. If the story openly involves real-life events, then it is a docudrama, with all its attendant clearance issues. If the parallels to real events are less obvious, are there nonetheless certain characters who would be recognizable to friends or acquaintances? Are these portrayals possibly insulting? What script changes can you make to prevent problems? Often, fact-based projects that are highly fictionalized are more difficult to deal with than those that are openly docudramas. Don't let your clients get hung up on the question of whether something is truly a 'docudrama.' Just make them focus on the consequences of anyone recognizing the real events and people underlying the story.

Don't Forget Companion Materials

A final warning among the general clearance guidelines for all productions: Plan early for rights and clearances for companion materials and for all relevant forms of internet/digital distribution. Companion materials can include Web sites, soundtracks, 'making of' documentaries, commentary tracks on DVDs, merchandising tie-ins, video games and books. Some insurers will extend coverage under the basic E&O policy to include companion materials, usually for a fee. New forms of distribution include Internet streaming and downloading ('Webcasting,' 'mobisodes,' etc.). Make sure that contracts include all the potentially necessary rights for such uses. Personal releases or copyright licenses may have scope of use or territorial limitations that are not compatible with the producer's and distributor's hoped-for internet uses or, for example, possible video games or merchandise.

Also make sure that the client keeps legal counsel fully in the loop about the companion materials before, during, and after production. Due diligence obligations for the production include making sure that companion materials are properly cleared and vetted by counsel to avoid causing claims on the production itself. (Consider, for example, the interview in the 'making of' documentary that names the real person who was carefully disguised in the show itself.) Also, it may be prudent to require that Web developers provide proof of insurance to protect the producer if the Web site created for the show contains infringing materials.

Part Two of this article, coming next month, continues the discussion of clearance procedures and provides specific examples.