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Insurers keep close eye on stars behaving badly

Insurers keep close eye on stars behaving badly

Actress Lindsay Lohan's latest brush with the law has put a spotlight on the exposures movie producers and their insurers face when working with stars who have a penchant for headline-grabbing misbehavior.

Ms. Lohan, with more than a dozen films to her credit, is one young Hollywood star who has attracted as much attention for her offscreen performances as her for roles. The 21-year old reportedly is in drug rehabilitation for the third time this year following her July arrest on cocaine possession and other charges.

After Ms. Lohan's frequent absences and late arrivals to the set of "Georgia Rule" in 2006, she received a public scolding from a studio head who threatened to seek "full monetary damages" if the actress did not honor her obligations.

Industry insiders say contracts and risk management strategies that are crafted carefully can allow the show to go on for most Hollywood bad girls or boys.

"Self-indulgent behavior is not new to Hollywood," said Brian Kingman, the Los Angeles-based managing director of entertainment broker Aon/Albert G. Ruben Insurance Services Inc. "It's always been a festive community. Our industry has learned to deal with that to some extent."

An actor's off-screen antics aren't followed solely by tabloid readers. Insurance companies definitely take note, entertainment industry brokers say.

"When someone's face sprawls across the evening news, and (the) information isn't favorable, it doesn't do us any good in this business, placing insurance and keeping it fair," said Diane Yount, area senior vp in the Glendale, Calif.-based entertainment division of Arthur J. Gallagher & Co.

Entertainment insurance companies insure the production company, not individual actors, said Joe Finnegan, vp of Novato, Calif.-based Fireman's Fund Insurance Co.'s entertainment division in Universal City, Calif. Sickness, injury and death are the losses covered.

An actor with drug, legal or health issues is considered an "exposure" needing careful analysis before covering as part of a movie.

That means higher premiums--or in rare cases, exclusions--for a hard-partying star than for a performer with no health or legal issues, Ms. Yount said. Exclusions can include not covering the actor if he or she becomes jailed during filming or declining to cover the individual altogether. "We're not going to buy a loss," she said.

With movie budgets inching higher and higher--the average production costs of a film are $65 million, according to the Motion Picture Assn. of America--film producers want to be sure that an actor's misbehavior doesn't put the production in limbo.

"There's more money at risk on these movies than ever before," Mr. Kingman said. Cast and crew on a film can number in the hundreds, "so there's a lot of people relying on these actors to get to work on time."

But insurance companies will work to provide coverage for films that include at-risk actors. "It's a bold, glossy statement to say, 'Yeah, there's nobody who's uninsurable,"' Mr. Finnegan of Fireman's Fund said. "There may come a time when I'd say, 'That's too much. I'm not comfortable."'

Mr. Finnegan said he and colleagues try to find solutions, although their answer might be "pretty tough to swallow" for movie producers, who may choose not to accept.

Insurance rates for at-risk actors can range from 1% to 3% of a film's production budget, which can range from $5 million to $100 million, Mr. Kingman said.

A single DUI charge will not necessarily make an actor uninsurable, but a regular incidence of claims by a production company relating to a particular actor's frequent absences "can be problematic from an insurability standpoint," Mr. Kingman said.

To cover such an actor, brokers take steps to craft risk management agreements with insurers.

"We leverage what we can," said Gallagher's Ms. Yount. "There's power in numbers." When trying to obtain coverage for a film starring a tarnished actor, Ms. Yount said she tries to make the account "as attractive to a carrier as possible," which at times includes keeping a close eye on the performer.

Risk management strategies include regular urine or blood samples, relinquishment of a driver's license or even a "minder," a sort of 24-hour babysitter to keep the actor on track and give executives updates on their charge's conduct, according to entertainment brokers.

Financial incentives can serve as a carrot to keep a troubled actor in line, Aon/Albert G. Ruben Insurance's Mr. Kingman said. Producers can withhold an actor's salary or fees until the project is completed on schedule without a claim. "The stick is that they have to pay the loss up to their salary amount if there is a particular problem for that known risk," he said.

And what of talk that Ms. Lohan is an uninsurable risk?

"With Ms. Lohan, she's very good. When she's onscreen she delivers very well," said Peter Marshall, senior vp at New York-based brokerage DeWitt Stern Group Inc. and a former senior vp of film production at Lions Gate Entertainment Corp.

Even so, "a lot of people in insurance and the bond world are scared to death to have her in a film right now" because of the uncertainty if she will delay a picture and cost producers more money, he said.

Insurers are willing, however, to give some actors a second chance. Robert Downey Jr., for example, is an actor who has overcome substance abuse, Mr. Marshall said.

"Robert has a really large body of extraordinary work that he created before he had problems," Mr. Marshall said. "There was a great level of expectations and hope that he could return. With some people, they get into trouble really early in their career and it's harder to rebound."