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.

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