Errors and Omissions Insurance (also known as E&O Insurance) is malpractice insurance for filmmakers. These policies protect against claims of defamation, invasion of privacy, infringement of the right of publicity, idea and story theft, copyright infringement, plagiarism, piracy and the unauthorized use of names and trademarks. Some policies cover unfair competition and failure to provide screen credit.
Even cautious filmmakers may find themselves facing a lawsuit through no fault of their own. Liability can arise even if they did not knowingly violate another’s rights and were diligent in securing all the rights they believed were needed.
Suppose a producer inadvertently infringes a copyrighted song in the course of placing it on the soundtrack of a film. Although the producer did not intend to violate the songwriter’s rights, and licensed the song from what appeared to be a reputable publisher, she can nevertheless be liable for damages. Although the filmmaker honestly believed she was licensing music from the legitimate owner of those rights, if that company did not have the rights they purported to have, the filmmaker may be liable. While a judge could reduce the damages awarded against an innocent infringer, compared to those who intentionally infringe another’s work, the attorney fees and costs to defend such a suit can be astronomical.
However, if the filmmaker has E&O insurance, it will cover potential liability as well as defense costs. Like other insurance policies, there is a deductible, which is usually $10,000 or more. A typical policy provides three years of coverage for $1 million per claim and $3 million for aggregate claims. E&O insurance does not cover intentional wrongdoing or any pre-existing claims. The insurance carrier will assume liability for negligent (careless) acts, but not for deliberate wrongdoing.
Insurers have different concerns based on the type of film being considered for coverage. Movies can be factual or fictional, original or derivative, or any possible combination. When a script is original, meaning it is not based on a pre-existing work, its origins must be determined to ensure that it is wholly original and nothing has been copied from another copyrighted work. If the script is derivative, then the filmmaker needs to secure rights from the owner of the original work it is based on.
When a film is based on a true story, the screenplay should be derived from primary sources (e.g., court transcripts, interviews with witnesses), and not secondary sources (e.g., another author’s work product), unless permission has been obtained to use such secondary sources or the information is not protected under copyright.
Some filmmakers tell fictional stories that are inspired by true events, such as the 1959 film “Compulsion.” In this case, an author wrote a book based on the real life kidnapping and murder of a young boy by Nathan Leopold. Although, Leopold’s name did not appear in the movie based on the book, the promotional materials made it clear it was a work of fiction based on the crime. Then there are movies that are presented as factual, such as docudramas and biopics,that may not be entirely factual. Often dramatic liberties are taken, such as rearranging events in a different order or combining secondary characters into a composite character.
With a fictional story, like “Spiderman,” it is important that the characters not infringe the copyright of another work. With a docudrama, the insurer may want to know if the filmmaker acquired life story rights of persons portrayed in the film and if a true story has been changed for dramatic reasons. Such changes could damage the reputations of living persons portrayed in the story.
Because the issues are complex, insurance companies usually ask applicants for the name of their production attorney and will frequently contact the attorney to ensure that all necessary releases and licenses have been secured and that the work complies with the insurer’s clearance policies.It is best to employ an attorney before production starts, so that appropriate contracts are used from the outset. If paperwork needs to be re-done after production, it can be very expensive and maybe impossible, if the filmmaker is unable to locate actors, crew and vendors to have them to sign revised agreements. In addition, if a film has to be re-edited because certain footage cannot be cleared, that can be very expensive.
Almost all distributors in North America require E & O insurance before distributing a film. Errors and Omissions insurance may also be referred to as Media Perils, media liability insurance or libel insurance. Some filmmakers do not even think about E & O insurance until a distribution deal for their film is being negotiated and they notice among the delivery items is a requirement for the producer to provide a certificate of insurance. They may be surprised to learn that distributors expect the filmmaker to secure and pay for E & O insurance, which costs thousands of dollars and it may take weeks for the insurer to process an application.
Before issuing a policy, the insurer may want to review releases, permissions and copyright and title reports. If the filmmaker is claiming fair use or public domain as the basis for certain materials incorporated in a film, she may need to secure a legal opinion to support the claim. If music is incorporated on the soundtrack, synchronization, performance and master use licenses may be needed. Filmmakers, who are missing essential contracts or information, will not be able to secure insurance or the insurance will exclude certain types of claims, which usually means most distributors will decline to distribute the picture.
In order to apply for insurance, filmmakers will need to complete a detailed application that asks for many details about the production and its clearance procedures and chain of title, including the identity of their production lawyer. The application requires the filmmaker to declare that all the information in the application is true, accurate, and not misleading. If the filmmaker misrepresents any facts, the insurance company will have an escape route to refuse to provide coverage against a lawsuit against the filmmaker. The insurance company can use this against the filmmaker and in the event of a claim, contend that the policy was procured by fraud and the policy can be rescinded.
There are different types of policies. A “claims made” policy only covers lawsuits that arise during the policy period. An “occurrence” policy covers all claims arising out of occurrences during the policy period even if the suit is filed years after the policy has expired. If you purchase a “claims made” policy, you need to renew the policy to continue coverage after the initial period expires.
Lawsuits are subject to different statutes of limitations. Defamation actions usually have short statutes, often one year from when the defamatory statement is first published. Copyright claims must be brought within three years from when a claim accrues, but there is a “separate-accrual rule” that treats each successive violation of a copyright as a new infringing act. Thus, each time a copy of the work is sold or distributed, the claim period could begin again. Copyright often endures for the lifetime of the author plus 70 years, so protection can last for many years. Moreover, some claims may not begin to run until the plaintiff discovers the infringement. While many claims that are covered under an E & O insurance policy often arise soon after a film’s initial public release, sometimes claims surface years later.
When filmmakers purchase a policy, they are the Named Insured and typically they add the distributor as an additional insured. An “additional insured” is an individual or entity added to the coverage of the policy often for no extra cost. In many instances employment agreements or guild regulations require adding talent as additional insureds. For instance, the Writer’ Guild Minimum Basic Agreement provides that guild writers be added the producer’s policy. The coverage of an additional insured is generally limited to claims asserted against that additional insured rising out of the activities of the Named Insured.
A checklist for applying for Errors and Omissions Insurance can be reviewed here.
Mark Litwak is a veteran entertainment attorney and producer’s rep based in Los Angeles, California. He is an adjunct professor at USC Gould School of Law, and the creator of the Entertainment Law Resources website with lots of free information for filmmakers. He is the author of six books including: Dealmaking in the Film and Television Industry, Contracts for the Film and Television Industry and Risky Business: Financing and Distributing Independent Film. He can be reached at firstname.lastname@example.org.
READ MORE: Attention, Filmmakers: 4 Things to Understand About Fair Use