Category Archives: Insurance Industry

Wildfires, Binding Authority & Jargon

There are multitude terms specific to any industry that are used by people in that industry. Occasionally the understanding of those terms can have signicant impacts on the general public. “Binding authority,” is a term used in the insurance world to extend the “handshake agreement” to our day-to-day practices. What binding authority allows your agent to do, is for most of the plain-vanilla home, auto and small business policies, once an agent has rated it with a company… you can then go into that agent’s office, sign some paperwork and pay the down payment – and you can be covered immediately at that instant. That “binding authority” is a courtesy allowed by standard & preferred insurance companies to their agents which allows them to immediately transact business and cover individuals.

This of course adds value to the local agent relationship. For policies that have circumstances that warrant further investigation, consideration and discussion between the agent and the “underwriter” at the insurance company, sometimes binding authority will be suspended on a case by case basis.

For the past week, as I get into my car to head into work in the mornings, I have to turn on my wipers to take what appears to be pollen off of my windshield. While there certainly is a good deal of pollen in the air right now at 7,800 feet in Santa Fe, unfortunately most of the “dust” on my car is not actually pollen, but is ash falling out of the air from the multiple wildfires happening in the southwest. This year seems to have been one of freakish “global winding” issues with massive tornados and extended extreme winds.

Santa Fe, New Mexico, which is about 250 miles from the Wallow fire burning on the AZ-NM border has smelled like a campfire and the air is thick with ash & smoke. Sunsets have been brilliant red – beautiful but deadly. The Wallow fire, the largest of several burning at the moment, is exacerbated by extreme high winds, which are causing burning embers to start new fires up to 3 miles ahead of the front lines. Inciweb reports that over 2,000 firefighters are working with 27 hotshot crews, 29 handcrews, 8 dozers, 141 fire engines, 46 watertenders and 20 helicopters. In one week it has burned a third of million acres and is considers 0% contained at the moment.

In the Southwest, we typically have visibility of 60 miles and over 300 days of sunshine a year. The Santa Fe Ski Area and Santa Fe Baldy are only about 15 miles away from my window, easily within viewing distance. For a week now, the air here, again 250 miles northeast of this fire, has still been so thick with smoke that the mountain is completely invisible. It is regular practice for our insurance companies to send us fax and email updates to “suspend binding authority” for new homeowners policies in zip codes that have current wildfires raging in them. Without that suspension of binding authority, an agent would never know, and the insurance company inspector wouldn’t have time to find out, whether somebody was potentially at risk of trying to insure-after-the fact.

Suspension of binding authority for auto policies is much rarer, however this week in our offices we have begun to see that some companies are now suspending binding authority for “physical damage” (comprehensive and collision) coverage for either new or existing auto policies that are within the affected Arizona zip codes. This is just another indication, specific to our industry, of the size & impact of the tragedies made worse by the lack of precipitation this season.

Considering this binding authority on “comprehensive and collision” brings to mind a story I heard just yesterday in a conversation with a friend. It seems that a relative had either seen an ad on television or received a flyer in the mail and decided to switch their auto policy coverage from an insurance agency to writing it themselves with a carrier who would quote and issue a policy online and promise them a discount for doing so. Be wary of discounts, and consider the value of the advice of a licensed insurance agent professional.

In this particular story, the person bought coverage and seemed to save a large amount of money. Not reading the descriptions of coverage on the website, and not examining closely their current “declarations pages” of their current policy (where an agent can understand more of the data than the average person), this couple decided to forego a coverage that didn’t seem to be needed, called “comprehensive and collision.” Their policy premium went down a staggering $50/month per vehicle and they were thrilled.

Thrilled that is, until 2 months later, when their vehicle, which they owned outright but was only about six years old, was run into while driving in a parking lot. Luckily, neither driver was injured, but the car was considered a “total loss.” They called their insurance company to make a claim, and were informed that because they did not have any physical damage coverage (comprehensive, collision — or even uninsured/underinsured motorist physical damage), there would be no settlement by the insurance company.

Stunned and financially impacted from having to purchase a new vehicle, this couple has now returned to having an insurance policy written by an independent insurance agent and is definitely now asking questions about their property to make sure that they are covered.

The lessons here are to speak with your insurance agent. Don’t leave any stone unturned. Go ahead and ask your questions. Your insurance agent’s job is to protect your financial well being, piece of mind, to protect your assets, and to protect you. Their (our) advice is well worth it!

Pool Drain Cover Recall

There have been some unfortunate and tragic incidents related to pool drain covers in the news lately.  Our friends at Philadelphia Insurance’s Loss Control program have advised us of the following Pool Drain Cover Recall that has come as a result of incorrect flow rating by the CPSC:

On May 26th, the U.S. Consumer Products Safety Commission issued a news release stating there is a voluntary recall of several retrofit or replacement drain covers that were installed new or as a result of the “Virginia Graeme Baker Pool & Safety Act” which was effective on Dec 19, 2008.

Per the recall “The drain covers were incorrectly rated to handle the flow of water through the cover, which could pose a possible entrapment hazard to swimmers and bathers.”

Visit CPSC Pool Drain Recall for more information. Each firm below has a website with photos of the recalled drain cover models. Please verify that your pool is not subject to this recall, or if your pool has a recalled drain cover, take immediate steps to have the drain cover(s) replaced.

Eight Manufacturers are cooperating with the recall:

Company Model Information (websites) Dates Sold Remedy
A&A December 2008 –
April 2011
Replacement or Retrofit
AquaStar December 2008 –
April 2011
Replacement or Retrofit
Color Match December 2008 –
April 2011
Replacement or Retrofit
Custom Molded Products December 2008 –
April 2011
Replacement or Retrofit
Hayward Pool Products December 2008 –
April 2011
Replacement or Retrofit
Pentair Water Pool & Spa June 2009 –
April 2011
Replacement or Retrofit
Rising Dragon December 2008 –
April 2011
Replacement or Retrofit
Waterway December 2008 –
April 2011
Replacement or Retrofit

Don’t Lose Your House! Is Your Film Production Actually Insured?

A warning on co-production agreements a.k.a. sub-selling scams

It’s not easy for you as a producer to keep everything on time and on budget. You make deals, alliances and partnerships to solve situations in everything from funding to distribution. Especially with smaller productions, film insurance can seem like an unfairly high expense that you’ll never really need to use. However, is saving a couple hundred dollars on your production really worth risking the loss of your home, your savings and 75% of every paycheck forever?

There are organizations and educational institutions that conveniently offer paper-only co-production arrangements that can seem to have a number of benefits to producers. One of those benefits can be presented as low or no cost production insurance and general liability. The California Department of Insurance (DOI) has recently set an important precedent against this type of film industry co-production arrangement with an official cease and desist order against “sub-selling scams” of insurance, clarifying the offense as the illegal misrepresentation and theft of premium by a non-licensed solicitor.

Consider for a moment what insurance is trying to do: cover the cost of completing a production or assets of the producers in case something just happens to go wrong. One important factor is a term that insurance companies use called “insurable interest.” Insurable interest in something is when loss or damage to that thing would cause the entity named in the policy (the Insured) to suffer a direct financial loss (or some other specific kinds of loss). The important point is that the entity who buys an insurance policy must have an insurable interest in what they are insuring.

The overall chances that something will go wrong, causing an insurance claim, with your production are quite low. However, that’s not a valid reason to try and look for a lower cost loophole in the production insurance system. Insurance premiums are priced according to the average occurrence of claims and the average cost of those claims. By trying to ride on someone else’s policy at low or no cost, you may effectively be creating a mechanism that gets you low or no protection.

How the sub-selling (co-production) scam works:

  1. A production company is established with the intent of “co-producing” projects with first-time or up-and-coming filmmakers. That can include festival projects, education institution related projects and just about every other small production out there.
  2. The production company purchases an annual insurance policy (liability, property/equipment, producers risk, auto, workers comp, etc.).
  3. This policy is then “sub-sold” to the other filmmakers under the guise of a “co-production” arrangement, often nothing more than a signed piece of paper, a check and a listing in the credits of the production.
  4. The agreement between the production company (sub-seller) and the filmmaker may appear to be a legitimate co-production. However, the arrangement is really nothing more than a scheme to disguise fees charged by the sub-seller for “riding” on an insurance policy.
  5. The problems with this arrangement include:
    • The production company (sub-seller) is not licensed to sell insurance,
    • The project of the first-time filmmaker is not (specifically) declared to the insurance company,
    • The “premium” is kept by the sub-seller,
    • The specific set of legal relationships and agreement between the policy holder and the co-production have not been reviewed and approved by the insurer, and
    • The entity that was sub-sold the policy has no “insurable interest.”
    • In essence, funds were paid for no protection.

The insurance company concerns arising from these sub-selling scams include:

  1. Insurance is being sold by an entity that is not licensed by the Division/Department of Insurance (DOI).
  2. The sub-sellers illegitimately act as underwriters (without authority), determining which risks they will “cover”.
  3. The price charged by the production company is designed to significantly undercut the legitimate markets.
  4. Claims may be denied by the insurance carriers due to
    • No insurable interest,
    • Material misrepresentation,
    • No prior declaration,
    • No material involvement,
    • No prior approval, and
    • No underwriting review.

    This places both the end purchaser of this phony coverage and the public at risk.

  5. The expertise and marketing efforts of licensed brokers with professional experienced are being undercut by these schemes.

Quantifying the loss:

Each year, thousands of “insurance risks” (policies) that would otherwise go to the legitimate market are lost to sub-sellers. That causes direct damage to the “averaged” premium system, raising premiums and expenses for all of the legitimately insured productions.

Important to note is that the above ruling from the DOI does not declare any new rules or procedures with regards to co-production sub-selling. What is described above was a violation before any ruling was issued – it’s not a recent change or addition to state insurance laws. However, there may have been some unfortunate grey area misperceptions, which were not necessarily direct or deliberate malfeasance. As you’ve probably heard before, not knowing that something is illegal is not an acceptable excuse for committing a crime

If another entity is a valid funder or partner in producing a production, then name them as another producer and move forward with a sole and separate policy for that single production. The only entities that can insure multiple productions are those that use the same people & same equipment to themselves make several very small productions throughout the course of a year, such as a small mini-documentary filmmaker or corporate image or video production companies.

Co-production organizations that do this “sub-selling” (like COMPLEX, named in the California order) may be operating under some kind of “don’t ask/don’t tell” or misinterpretation assumptions. They may or may not in fact know that what they’re doing has a level of risk that’s not truly or legally acceptable to insurance companies or able to be guaranteed by the state department of insurance. They likely have never heard the term “insurable interest.”

The full text of the order from the DOI can be seen online at: ORDER TO CEASE AND DESIST (

This order is enforcement of the existing laws which allow and require only state-licensed insurance agents, brokers and companies to make a determination on who or what can be insured, for how much premium and to guarantee that the coverage actually is valid. This same law exists in every state, including New Mexico, Arizona and California.

The core problem, and where the illegality applies is that when a production company sub-sells insurance from the larger policy that they hold, all of a sudden that FILM production company is now acting as an INSURANCE company – they are evaluating and assuming new risks, doing their own “underwriting,” collecting premium and otherwise insuring a production which really is not their own. Film production companies are not insurance companies, and are not licensed (for good reason!) to make these kind of business decisions, and are certainly not authorized to make those decisions on behalf of the funds of the underlying insurance company!

The correct way, if there were a true collaborative production agreement between the production company and the sub-production, would be for the production company to revise all of their information and submit a new application for either a single production or a scheduled “slate” of defined productions (that they will actually be materially involved with) with their insurance company, who in turn would review all of the new production information and make a determination about whether they wanted to insure the new production, and if so, at what rates with what requirements.

Only insurance companies are capable and licensed to make that kind of determination. The determination of the insurability risk of a company is made based on many factors, including the experience of the principals, the length of time the company has existed, the operating revenues, number & type of productions made annually, sample scripts & budgets, prior coverage & claims. The insurance company evaluates these things before issuing an insurance policy. When all of a sudden you throw unknown/new producers, directors and financiers into the picture, whom the insurance company has not reviewed, you’re creating a large problem question of WHO was insured, and who was approved by whom. When it comes to incidents and claims, obviously an insurance company can deny claims for exactly this reason – that it wasn’t an operation and/or operators whom they had approved – and in fact never even knew about or had a chance to review.

From the DOI online examples, the above described practice is almost exactly similar to
misrepresentation and theft of premium by a non-licensed solicitor.

What’s being exposed with the cease and desist order is the current loophole/don’t ask/misinterpretation practice of a larger entity claiming that they make a large number of productions with a large number of production partners each year, and those larger companies having heard from their insurance companies something that they interpret along the lines of “you don’t need to tell us about each production you’re making, we insure all of your operations,” and then those companies are entering into what are really non-material-involvement co-production on-paper-only agreements where they are a partner just in name/credits, but not truly involved in making the production as their own.

And therein lies the ultimate nightmare where this problem could end up – someone THINKS that they are buying co-production (sub-sold) insurance, but in the event of a claim are likely to be denied – meaning that they are not insured at all and never were – because they’re buying something that doesn’t exist from someone who isn’t authorized to sell it. At the end of the day, if the production isn’t covered and claims aren’t paid, you the producer are likely in for a very substantial financial and legal hardship.

For questions, comments or inquiries, please contact us