Workers' Compensation Concerns in the Entertainment Industry

Status Quo

Venues, film or recording studios all deal with a similar exposure on a regular basis, yet the exposure is misplaced. We'll use venues for our discussion.

When events are negotiated, Workers' Compensation (Work Comp) requirements in contracts are often "lined out" or removed. Prohibitive costs and exemptions due to independent contractor status are the most common reasons.

Highly creative entrepreneurs are prevalent in the entertainment industry, and several work together for most events. The idea that a business wouldn't sue itself so Work Comp isn't needed is often raised. Work Comp is still very valuable to small businesses and individuals, though many forgo coverage. If coverage is in place, owners, partners, executives and others may be legally excluded by their choice, or the policy may not contemplate all classes (types) of workers. Volunteers (ushers, etc.) are an example-with no payroll or cost to base the premium, and no lost wages, Work Comp is not designed for this class. It should be noted the certificate of insurance may not reflect all exclusions.

Many Work Comp policies bear minimum premiums. Their premium calculations for a small business may be below the insurer's minimum premium. The business or individual is charged more to reach the insurance company's minimum premium to be acceptable to the company. It's similar to a contractor's minimum rate, or venue's minimum fee. All businesses' rates consider operating costs and other factors.

Concerns for Studios and Venues

It can be a make or break issue for an event proposal. Yet some states require a General Contractor to provide Work Comp if their subcontractors don't have it. Laws and interpretations change. Boundaries defining general and independent contractors are easy to overstep. Contractors and related parties such as an apprentice, spouse or child may disagree with definitions of "general" and "independent contractor" when an injury or death occurs. At such times, people will look for coverage somewhere.

When the status of an injured worker is ambiguous, the venue's ability to cover the worker will likely be examined. If coverage isn't available under its Work Comp policy, its General Liability (GL) and Excess or Umbrella insurance may be at risk of a claim.

Vicarious liabilities, whereby one is responsible for the actions of others through a legal duty, may include ensuring that all workers, including self employed, are covered. A venue's standard contract typically has Work Comp requirements, so arguably it's aware of the risks in advance. GL, Excess and Umbrella may be triggered. Claims against the venue's coverage by contractors could result in higher premiums for the venue, even insurability problems. In many cases there will be no coverage, and the venue could be left holding the bag. The best bet for any venue is to insist on coverage for all workers. Expect push back, yet risks to the venue are too great to ignore. However, it's always best to find solutions everyone can live with.

A Solution

An interesting alternative available in most states is Occupational Accident (Occ Acc), especially when paired with Contingent Liability. Policies vary, yet generally Occ Acc covers certain claims arising from a work related injury or death for a covered contractor, for a specified period after the accident. Contingent Liability steps in as Work Comp if an independent contractor is deemed to be an employee of the policyholder.

Largely because of the limited term for claims payment, Occ Acc is usually much more affordable than Work Comp. As Contingent Liability only steps in if a worker is deemed to be an employee of the policyholder, its cost is usually more affordable too. Since there can be significant cost savings and they're designed for independent contractors, the two main objections to coverage are met at once and the venue enjoys a level of protection.

Risk managers are strongly encouraged to contact their agents or brokers about alternatives. Available options can provide levels of protection for the venue's coverage limits, pricing and insurability. And the cost could be reflected in event negotiations-without endangering the success of the event.