His daughter missing and a secret government program uncovered …
Ben Affleck’s detective thriller Hypnotic was next in line to be on the actor’s list of blockbuster films. That is, until the COVID-19 pandemic halted the film while it was still in pre-production. To insure against such business interruption risks and delay, Hypnotic’s production company, Hoosegow (Hypnotic) Productions Inc., had purchased a Film Producer’s policy from Chubb National Insurance Company.
Hoosegow sought to extend its policy term congruent with delays suffered as result of the pandemic. Before the onset of the pandemic, Chubb had explicitly represented to Hoosegow that its policy expiration dates would be “extended as needed.” But Chubb refused to honor this commitment and instead offered only to negotiate a new Film Producer’s policy that added a specific exclusion related to COVID-19 losses. In response to Chubb’s about-face, Hoosegow sued Chubb for breach of its Film Producers policy, bad faith, fraud, and declaratory relief, citing Chubb’s explicit promise as well as Chubb’s industry-specific custom and practice of extending Film Producers’ policies until completion of the project.
This will sound familiar to readers of Pillsbury’s blog posts and alerts. On May 13, 2020, in “COVID-19’s Impact on the Motion Picture and Television Industries and How Insurance Can Soften the Blow,” we noted that studios and production companies with pre-COVID policies should receive coverage for COVID-related losses, but warned that some insurers would certainly attempt to improperly add COVID-19 exclusions to those policies. We have also called out insurer attempts to slip unbargained-for COVID-19 exclusions into other types of policies, such as event cancellation.
Staggering COVID-related losses in the film and television industry translate to staggering claims, both in dollars and in quantity, for coverage under Film Producer’s policies. Insurer attempts to insulate themselves from such claims are expected, and so, too, is related litigation. The Hoosegow complaint exposes a real-world application of such an attempt and should be watched closely by policyholders.
Hoosegow’s complaint articulates a laundry list of alleged bad faith acts and omissions of which policyholders should be aware. Hoosegow alleges that, in negotiating its policy, it sought to have the policy expire in March 2021, when it expected production to conclude. But Chubb insisted the expiration date be set in October 2020 to align with other Chubb-Hoosegow policies, and stated the parties “can extend as needed.” As a nonessential business, Hoosegow’s production of Hypnotic was shut down in March 2020 due to COVID-19. At that point, Hoosegow’s complaint against Chubb details its inability to get Chubb to keep its promise to extend the policy.
Specifically, Hoosegow alleges that for two months Chubb ignored its request to extend its policy. When Chubb finally responded, it informed Hoosegow of its new “global position” to refuse to extend policies after a production had been delayed. Per the complaint, Chubb refused to address the requested extension any further and instead framed its communications as discussions regarding “its intentions regarding the upcoming renewal of that policy.” Critically, this proposed renewal drastically restricted the scope of coverage provided because it included an additional exclusion specific to COVID-19-related losses.
Insurers’ reactions to the COVID-19 pandemic differ based on industry and the terms of their policies. While many policyholders outside of industries such as film or construction may not have similar “project delay” coverage, Hoosegow’s situation demonstrates the need for policyholders to be on the lookout for creative attempts by insurers to deny coverage or add exclusions to their policies, and to consult coverage counsel early to help minimize the ability of insurers to use such tactics. If nothing more, Hoosegow acted proactively to protect the scope of coverage it negotiated with Chubb and its right to extend that coverage as Chubb promised. Policyholders carrying first party property and business interruption insurance—in any business—need to be similarly proactive in protecting their pre-COVID-19 policies and the coverages they provide.