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By MATTHEW BRODSKY, senior editor/Web editor of Risk & Insurance®

This past April, conversations among insurance professionals tended to drift to one major news topic, the Icelandic volcano that was spewing ash into the stratosphere and grounding airplanes in Europe. Underwriters, brokers, risk managers, you name it, folks recounted stories of being stranded in London for weeks or needing to take "red-eye" trains to Italy to find an open airport. Now imagine some VIPs caught in this situation. No offense, insurance pros, but we're talking about Hollywood movie stars, real multimillion-dollar talent here.

Normally, Konrad Dowling, managing director of Gallagher Entertainment, said insurance isn't bought for such a risk. Producers plan ahead and instead, say, fly their actors and staff out a week in advance. But there was this little problem of the volcano with the unpronounceable name and the fact that its ash clouds and the resulting airport closures were still unpredictable: Not to mention the production's tight filming schedule and the blockbuster nature of the project.

"They said, 'We don't want to take that risk,' " Dowling told us.

So Gallagher Entertainment approached several underwriters with the idea of coverage. Several carriers replied that they would provide coverage, if delays caused by the Icelandic volcano were excluded. Hello?! That was the exact same risk that the Hollywood producers wanted protection from. Eventually, the brokers convinced one of the carriers to step up. How'd they do it?

When asked that question by your author, Brian Kingman, also a managing director at Gallagher Entertainment, laughed. "We threw some money at them," he said.

But seriously, underwriters need premium to stay in business, particularly in this market. And the brokers convinced the underwriter that the actors had some cushion in their schedule, as well as contingencies should the volcano erupt, like flying into Spain and taking a train into London.

The resulting policy language also included a deductible of a couple days of delay, after which it would pay out a few hundred thousand dollars per day of delay for each actor should one or more be unable to arrive in London in time for the shoot--all for a premium in the several hundred thousand dollar range. Kingman and Dowling couldn't give specifics on the name of the movie, let alone the insurance numbers, because Hollywood risk managers are typically more nervous and risk averse than your average nervous, risk-averse risk manager. Besides, all of the actors arrived in London without incident and without the coverage being triggered.

One of these said actors was so important he had in fact an additional, multi-hundred-thousand-dollar insurance policy to guard against him not arriving in time for the filming of this "major, major tent-pole" movie, as Dowling described it. The peculiar problem with this actor was that he was committed to a smaller project before he signed on to this "very, very, very, large" blockbuster (another way Dowling described it). This smaller project was scheduled to end filming just as the larger project was set to start in London.

The scheduling was too close to take chances. If all went well, the first movie would end just in time, but what if a delay of a few weeks in filming occurred? The second film could miss key release dates, which would cost it significant amounts of money in lost cross-promotional activities. Tens of millions of dollars were already tied into advertising and mass-culture merchandising.

So the bigger producer approached the smaller producer and asked for a guaranteed release date for the actor. The latter production balked at first, Kingman recounted. Mind you, this situation is really unheard of in Hollywood. Usually, actors are committed to projects and producers, sometimes for life. They don't get passed around like old sets.

Seeking counsel, the producer of the smaller film got Gallagher Entertainment on the phone.

"Kingman, is this a good risk? Should we do this?" he asked his broker.

Kingman advised that it was a terrible risk, unless they were insured for it ... with coverage paid for by the other producer. The Gallagher brokers then helped conceive of this product, which essentially was a policy that guaranteed the early release of the megastar and would pay the smaller production for any additional costs incurred by voluntarily releasing the artist, up to a several-million-dollar limit.

"Just about any contingency would have fallen in that basket," Kingman said, from weather to a slow director, from the behavior of other actors, to broken cameras.

Both producers worked together on this, in part, because this blockbuster could be a "career maker" for the actor, Dowling said.

The smaller film knew it could handle the risk. They had a proven track record of getting films in the can and knew they were filming in the summertime where weather shouldn't be a problem.

And the producer of the big film also went along because they analyzed their exposure beforehand, with the help of the Gallagher Entertainment brokers. They understood how there was no cushion between the two shoots, perhaps a week. The big producer calculated how long the film could wait for the actor. As it turned out, they filmed in London for two weeks without him.

The smaller film ended up going over by a couple of days, but everyone there did their due diligence to ensure the work got done in time. The one-week cushion wasn't eroded. The coverage wasn't triggered.

MANY CLIENTS, MANY RISKS

Did you happen to catch that by the way? The fact that both productions in this scenario were clients of Gallagher Entertainment?

No, it wasn't a conflict of interest, Kingman responded when asked. The brokers had advised both producers along the same lines.

"We're honest brokers. We tell them the pros and the cons," he said.

"We want everybody to work," Dowling added.

Makes sense, because the more people work in Hollywood, that tends to lead to more work for the brokers of Gallagher Entertainment. Look at the top 10 films of 2009, and Gallagher Entertainment worked with producers and/or distributors at eight of them. Clients represented $2.67 billion of the $3.25 billion in box-office receipts made by 2009's top 10 films--82 percent.

In years past, over the course of a half century, this brokerage team has represented iconic, classic, head-spinning films, from The Godfather to The Graduate, from Psycho to Star Wars, from Rocky to Raiders of the Lost Ark. They work with other branches of the business, such as sports, music and museums, but their sweet spot is definitely filmed and taped entertainment, including movies and the undead fad known as reality TV.

Dowling, Kingman, fellow managing directors Shirley Griffith-Bourke and Diane Pinter, and about 30 other team members have only been "Gallagher Entertainment" for about two and a half years. Before that, the team had been at Aon/Albert G. Ruben, in the case of Kingman and Griffith-Bourke each for nearly three decades.

The original members of the team--some of whom are still working at Gallagher Entertainment--launched the entertainment insurance business with the so-called Founder's Group in 1957. They launched the entertainment unit within Fireman's Fund, still a market leader. They helped craft the wording for the standard insurance policies of the entertainment industry, including cast insurance and TV and movie errors and omissions.

They launched global insurance and brokering programs, entertainment claims adjusting services--you name the need of the industry, they seemed to be a step ahead offering it.

To this day, the Gallagher Entertainment team claims to carry on the traditions of this Founder's Group, promising not just to service their accounts and projects but to become a part of the production team to solve their unwanted and unaffordable risks.

"Our heartblood is to solve risk-related issues for our clients," Kingman said, like the Icelandic volcano or the actor who was too huge to lose.

Sure, productions also need the standard entertainment coverages, the aforementioned cast insurance or anything from third-party property damage to props, set and wardrobe. But every film also brings new challenges.

"Every movie is different, every movie is unique, every movie has unique risks," Kingman put it.

So perhaps, yes, every day producers call with questions about risks and insurability issues. Just the day before Kingman spoke with Risk & Insurance®, he received a call from someone interested in hiring Lindsay Lohan. Dowling had one that very same day from a producer wondering about the risks of filming in Israel. Many of these calls end up translating into producers buying coverage, sometime bespoke coverage if the risk falls outside of the usual insurance policy.

Said Dowling, most producers are risk averse, especially if they're independent from the big studios. The broker's job is to structure these policies in such a way that it's affordable.

Dowling recalled one weather policy that was crafted to insure that the director got a desired "Fargo-like look" on set. The underwriter would pay out each day that a certain depth of snow didn't cover the area out to a 25-mile radius. Heck, these Gallagher people are not just rainmakers, they are snowmakers.

December 1, 2010

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