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Business Insurance

Discussion in 'Studio Lounge' started by MadMax, Sep 11, 2009.

  1. MadMax

    MadMax Well-Known Member

    Getting ready to dial it up a notch or three when I FINALLY get the doors open on the new digs...

    In doing so, we're looking at moving from a Sole Proprietorship to either S or LLC. The accountant is suggesting S. I thought it would be best to find out of there is some type of advantage or disadvantage from an insurance liability standpoint.

    After talking with several agents, it appears that the real liability changes are between Sole Proprietorship, and Corporations. OK... the corp type doesn't matter... good deal.

    But, now looking at commercial policies, I'm wanting to be sure I'm not overlooking something to bite me in the butt, and that I'm not getting fleeced for items that I do need.

    One thing that seems common from all underwriter's is the lack of coverage for what they all term "Personal Injury and Advertising Injury".

    When I asked what this was, I was told that it's an exclusion from coverage for being sued because a client says that you didn't deliver a product as advertised. Two agents went further to explain that what this is intended to address is failing to deliver an "acceptable" product to a client.

    This got me thinking that maybe I should ask about just how much of a problem this really is, and whether there is a need to locate an underwriter for this specific line item... so, is there?

    However, according to www.irmi.com, Advertising Injury is;
    "A general liability coverage, combined in standard commercial general liability policies with personal injury coverage, that insures the following offenses in connection with the insured's advertising of its goods or services: libel, slander, invasion of privacy, copyright infringement, and misappropriation of advertising ideas."

    To me, this addresses a situation if I were to talk smak about competitors, being accused of stealing a copyright, etc...

    So, which is it?... or is this addressing both situations?

    Since this is evidently NOT a standard covered item for any business involved in creative content, how hard of a push should be made to find coverage for either of these two situations? Heck, is it even possible to find?

    The other item I wonder about is "Brands and Labels" coverage. According to irmi.com;
    "A property insurance endorsement that grants permission for the insured to remove labels from damaged goods or mark the items as "salvage," provided the goods are not damaged in the process. Alleviates concern about potential injury to the insured's business reputation resulting from the sale of salvaged goods by the insurer."

    This looks to be something important to be aware of, but I just can't envision how this would apply to a studio. Of course, I'm probably wrong, and not reading this correctly, and need to increase this limit to a higher level.

    Is there a general liability, inland marine or other premises level coverage option that I should be acutely aware of making sure that should be included? Equally important, is there something that I should make sure is NOT underwritten on a policy that would drive up a premium?

    Also, is my logic reasonable to start with a lower deductible and increase it over time as cash flow (should) increase?

  2. MadTiger3000

    MadTiger3000 Active Member

    I will address your last question only. I am not an insurance agent by any means, but I am a credentialed business consultant.

    Self-insuring some portion (or the entirety) of your business is a very acceptable and common practice for many startups.

    How do you choose your level of coverage? Just like a barebones auto or health care policy, you want catastrophic situations covered. You want to self insure for minor situations. A disciplined and conscientious business owner can take the difference in payments and either save these in an interest-bearing account, or immediately reinvest them in business equipment, inventory, etc.

    In your specific situation, a first-rate alarm system, an effective fire suppression system, an iron-clad section in your contracts detailing policy concerning the security of your sessions, regular inventorying of studio equipment, and professional diligence will go a long way towards minimizing your exposure to risk, and thereby decreasing your insurance expense.
  3. MadTiger3000

    MadTiger3000 Active Member

    In addressing your last question, I strongly believe I provided some insight into answering your other questions.
  4. BobRogers

    BobRogers Well-Known Member

    Insurance is the only investment which (a) has a negative expected return by design and (b) you hope to lose money on it. Always try to lose as little as possible. Go for as big a deductible as you can afford all the time (hopefully that increases as you get more successful).

    The exclusion stuff sounds like they don't want to risk the kind of lawsuits where someone sues you for not making a "professional" sounding album. (Just a guess from here.) You need to talk to your lawyer about how many suits like these get filed and what your exposure is.
  5. dvdhawk

    dvdhawk Well-Known Member

    Nothing more exciting than insurance - yawn.....

    A) I would think you should be incorporated just based on the liability involved in the live rig. An accident/injury there could be costly. Being incorporated at least insulates your personal assets. I don't think it matters S or LLC - in terms of insurance. The tax differences might be more significant.

    B) I'm not in the insurance biz, but part of what you're posting about "failing to deliver an 'acceptable' product to a client" reads like mal-practice or 'errors & omissions' insurance.

    The "didn't deliver a product as advertised" sounds like a drained the oil / changed the filter / forgot to put in new oil / customer's engine blew-up policy. No matter what the trade, in reality, people who don't deliver on contracted work don't stay in business long enough to be sued anyhow. Both seem hard to apply to the recording arts.

    And I can't for the life of me imagine the scenario where a studio would be selling goods relabeled damaged or salvaged. I can't imagine how that even came up.

    And from my limited experience: higher deductible = lower rates, if that's what you were asking.

    C) What's your liability if somehow their master/session recordings got lost / destroyed?

    Your redundant RAID drives and back-up procedures seem as thorough as humanly possible - I don't know how they could prove negligence. (lack of proper or reasonable care) Worst case scenario you lose a day's work if you back-up your data religiously.

    I know you're just looking for the next thing to worry about, and unfortunately we do live in an over-litigious society. Even insurance agents need to carry an professional "errors and omissions" policy to cover their ass in case of "failure of work to perform as promised in a contract", if they miss any details in your insurance policy and get sued. Idiotic, huh?

    Because, where there's a will there's a shyster.
  6. MadMax

    MadMax Well-Known Member

    Gentlemen, (and hawk :) ) I really do appreciate the replies!!

    The main reason I bring all this up, is for the purpose of educating others who would just open their doors, hang a shingle and not bother doing what it takes to protect their assests. :)

    The secondary reason is that in reviewing the proposed policy, I found those two items... which brought plenty of questions to mind.

    Prolly gonna take me a bit to get all this in one post, so please bare with me..........

    The basic business policy covers all the usual catastrophic losses; Fire, theft, computers, loss of income, etc...

    Because I'm essentially "all-in" on this thing, I feel I absolutely must cover my investment. As a new facility, I cannot guarantee any income for even the first year... maybe two.

    Since cash flow is what addresses self insured/deductible, and there is little to no cash reserve, I would think it prudent to secure a low deductible for at least the first 12-24 months. That way, if there were to be a loss, at least I could potentially financially survive it.

    Then, as business hopefully picks up, I would be able to raise the deductible and thereby reduce my premium.

    The facility does have alarm, security and fire suppression. Those items actually went a long way in getting a pretty decent rate in the first place.

    Again, the policy is really not that bad of coverage... actually, it's very thorough, except the two items that I brought up.

    I really just didn't understand the re-branding/re-labeled damaged/salvaged clause... at all. Typically, when I read something like that, it ends up being something so important that I wanna' smak myself, or it really doesn't apply. If no one else can see where it applies either, then it's like so many things in a general policy, they stick it in there to make it look like you're actually getting something important. It IS a covered item with a significant dollar limit.

    Lemme re-introduce that Advertising Injury clause again....

    Advertising Injury is;
    "A general liability coverage, combined in standard commercial general liability policies with personal injury coverage, that insures the following offenses in connection with the insured's advertising of its goods or services: libel, slander, invasion of privacy, copyright infringement, and misappropriation of advertising ideas."

    The Advertising Injury clause is something that seems is rather vague in it's application to our industry. Then again, that's what worries me... is it really vague, or is this some kind of prevalent trend?

    Because we're dealing intellectual property, and the term "copyright infringement" is specifically addressed, it kinda' raises the ol' red flag of being something that I should pay attention to... ESPECIALLY when it is a non covered/excluded item from the policy.

    When taken at face value, then no, it does not appear to concern a creative content aspect of the audio, video, POST or ADR subsets of our industry. However, as litigious as society is becoming, I have learned to pay attention to my "spider senses".

    Similar to hawk's interpretation, I see it like a car rental... If I rent you a car (the studio facility), I cannot be held responsible if you want to fill it with 12 people and they all don't fit in a sub-compact. If I had told you that I had a van, and then gave you a sub-compact, then yes, it applies that someone would potentially have a claim... which would not be covered by the policy... but even that is a stretch, as it seems that this applies to advertising. e.g. If I advertised that I had a van, but didn't, that's false advertising. If I advertise I have a van (or any vehicle for that matter), it's up to the client to determine suitability for their needs.

    Libel and slander aspects only concerns my actions towards a client or competitor.

    So, how does one go from these types of practical interpretations to what in essence being interpreted as not delivering a satisfactory product to the client????

    As a studio, how can it be held liable for "poor" content creation? A studio is not creating the intellectual property, we only provide document generation. I guess the only way I could remotely see the application of that clause would be if there were a major equipment failure which resulted in poor documentation?

    But how can a lawsuit stand in court against a studio, when the situation is equivalent to suing Xerox because a copier was smearing toner across your copy? Equipment just plain breaks down... You mean to tell me a studio can be sued because a mic or preamp takes a dump?

    This is why that clause of non coverage becomes an issue of concern.
  7. MadTiger3000

    MadTiger3000 Active Member

    One of the things that helps to protect a professional is his education and reputation. Aside from professional liability insurance, which you might be able to get from a smaller, more ambitious firm, it goes a longer way than one would think.


    I have had various small businesses of all sizes off and on since the age of ten. In those 31+ years, I have only had two so-called dissatisfied clients.

    If it were crazy enough that those two crazy cheapskates were to sue, who would be believed?:

    Brag for me:

    MBA-educated, worked at 2 Fortune 50 companies, volunteered business consulting on a few presidential campaigns, and worked on government military research with my software engineering.


    1. Ex drug-dealer felon from a family notorious for dishonest business dealings.

    2. Crazy church lady with mental/emotional instability.

    Anything can happen, but I am relatively confident my reputation would win out.

    In your case, just from what I have seen of your situation here, you are extremely meticulous and conscientious. I am sure you could gather dozens, if not hundreds, of satisfied clients to vouch for you against headbanger #1, or Celine Dion wanna-be #2.

    Check into smaller insurance companies. They would be hungrier for the business, and may want to do the simple professional liability policy. Or not. ;-)

    You are already doing more than 99% of my clients who are considering startups, from following your long thread about your studio journey. Don't worry yourself to death. You have done great thus far.
  8. dvdhawk

    dvdhawk Well-Known Member

    Upon further review -

    Read that as though you owned a burger joint that was using the golden arches or some burger royalty in your ads with a twisted version of their slogan(s) or trademark(s) accusing the competition of using possum meat. Their McLawyer would hand you your ass on a platter (or sesame seed bun as the case may be)

    I think this specifically covers you should you accidentally, or on purpose, advertise something actionable.
  9. MadTiger3000

    MadTiger3000 Active Member

    That is funny, since it reminded me that *a company* s just lost a lawsuit going after an Indian place called McCurry.


    McCurry > McLawyers on that one.
  10. dvdhawk

    dvdhawk Well-Known Member

    and after I worked so hard to not mention them by name and protect us all from legal scrutiny.

  11. MadTiger3000

    MadTiger3000 Active Member

  12. MadMax

    MadMax Well-Known Member

    That makes a lot more sense. Especially in that the policy rider does NOT cover that risk.

    I think you're on target with your read.

  13. MadMax

    MadMax Well-Known Member

    I appreciate the kind words.

    Unfortunately, I'm not having much luck NOT worrying about a major loss. I guess that come from being a Boy Scout.... "Be Prepared" and all that.

    You know, it's amazing how much detail you need to look at to go from running a mobile rig as a Sole Prop, to a corporation running a brick and mortar. OOF! (No wonder I wasn't really wanting to do this!)

    The agent/agency I found is smaller, and does seem to be wanting my business. So, I'm reasonably happy with what they've brought to the table. I contacted several agencies that haven't even returned my calls. (It must be nice to have so much business that you're turning income away, huh?)

    The quote is roughly double what our home policy is, and a bit more than 25% of what Sound Pro premiums added up to be... and it covers the building, contents and a whole heap of other stuff that is prudent general business coverage that companies like Sound Pro don't even address.

    Is there anything that you, or anyone else, would suggest is an often overlooked rider?

    Like... I found out that it's fairly common for a promoter/producer/A&R/label to obtain a short term injury policy for an artist before they go into a studio. Similar to what a promoter and/or production company obtain for liability/injury when putting a show together in a large venue. Which has prompted me to consider talking to the agent about a generic short term policy to be part of my standard contract.

    Then too... that means another chunk of change that's going to need to be spent getting ironed out with an attorney.... ooooooooof.

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