There are many legal aspects of running an art-related business that could be fairly characterized as less than interesting, but few topics inspire more blank stares, or glazed-over eyes, faster than insurance. Like a lot of legal topics, thinking about insurance requires that we think about negative outcomes – what happens when things go awry – and so it’s natural to want to avoid the topic. But if you’re serious about running a business, insurance is a necessary, perhaps even critical, piece of your legal foundation.
What is Insurance?
Fundamentally, insurance is a way of managing risk. Virtually everything you do in life, and certainly in business, entails some degree of risk. As a general rule under most western legal systems, if you engage in a particular course of conduct, you’re on the hook for the consequences of that conduct. If you incur costs on someone else because of your behavior, you have to pay it back – the law calls that a liability. Another risk you might incur is to our own property – you might break or lose something that is so valuable that to replace it after an accident could impose an undue financial burden.
In short, insurance allows people (and companies) to engage in activities that could cause harm – either physical or economic, to yourself or others – without having to take on all of the risks. It is a way of protecting against liabilities that could exceed your ability to pay, leading to financial distress or bankruptcy. In simple terms, an insurance policy is just a contract between someone who wants to protect themselves against certain risks, the insured and an entity that makes its business managing large profiles of risk called an insurer (more commonly known simply as an insurance company or insurance carrier).
Why are insurance companies willing to buy your risk in the first place? Because they take on risk from lots of different people, across a broad spectrum of the population, they’re able to spread that risk out. Among the people insured by a particular company (called the risk pool), there will be some good risks and some bad risks, and if the insurance company does its math right they’ll basically cancel each other out. The more people in the risk pool, the easier it becomes to calculate the potential losses, thanks to a statistical phenomenon called the law of large numbers.
As an insurance consumer, you probably won’t ever need to know about the statistical models that underlie your insurance premium, but I find it helpful to understand the general framework of the industry, and how insurance works.
Why Do I Need Insurance?
Simply put, being in business is risky.
Suppose you’re a wedding photographer and your camera fails during a wedding causing you to miss some of the most critical moments; or worse, suppose you lose the memory cards, leaving your client with nothing. Or suppose you’re a nature photographer and you drop your rented camera gear into a lake trying to make the perfect image of a waterfall. Maybe one of your stock images ends up being used in an unsavory ad campaign and the model in your image claims you defamed his reputation. Or maybe you’re a sculptor and one of your visitors slips on a wet floor in your gallery and sues you for physical harm and the resulting emotional distress.
Each of these scenarios could result in significant financial liability, either through actual payouts due to the people hurt or owners of the damaged property, or simply through legal expenses related to defending your conduct in court. Without insurance, the financial impact could have a crippling effect on your business; with the right kind of insurance in place, however, each of the situations described above could be reduced to little more than a frustrating inconvenience.
Insurance is also useful in that it will also generally cover the costs associated with defending your case. For example, if you get sued by someone for something covered by your insurance, the insurance company takes over the case, hires the lawyers, and manages the process.
Finally, there is a more concrete, immediate reason why you might need insurance: Many venues require that you provide a certificate of insurance that proves you have insurance and lists the venue as a beneficiary, loss payee, or additional insured on the policy. That gives the venue some comfort that if it gets sued as a result of your use of the property, your insurance will cover them. Certificates of insurance are almost always required to use public property for commercial shoots (e.g., train stations, airports, public roads, town squares) as a condition of receiving the necessary permits. Increasingly many hotels and event spaces require them for wedding shooters.
Types of Insurance
Most artists will be interested in three particular types of insurance coverages: professional property, general liability, and errors & omissions.
Commercial property insurance is just as it sounds – it protects property that you use in the course of business. In the art world, that typically means camera gear and related electronics, or other high-value tools of the trade. In the examples above, the camera that falls into the lake would be covered by most typical commercial property insurance policies, as would gear that is stolen or damaged. If you use a lot of expensive equipment in the course of your work, particularly equipment that you might not be able to easily replace by paying out-of-pocket, then commercial property insurance is critical.
Many homeowners’ or renters’ insurance policies cover personal property, including cameras and other electronics, but that coverage is often limited to property that’s reserved for personal use. Property used for business purposes is almost always excluded. If you use your gear for business purposes, even part-time, you’ll want to read your policies very carefully to make sure you have the coverage you need. If you don’t, then you will want to consider a commercial property policy.
General liability insurance, sometimes also referred to as commercial general liability (CGL) insurance, as the name suggests, covers general liabilities that arise as you carry out your business. Remember the gallery visitor slipping on the wet floor example from above? That’s the kind of thing that CGL insurance will typically cover. A light stands falling on someone’s head, someone tripping over a power cord on the ground, and so on – those are all examples of the sort of thing that a CGL policy will cover. Some CGL policies would cover the photographer in the case of the defamed model example as well.
Finally, errors & omissions (E&O) insurance provides coverage for what essentially amounts to failing to do a job correctly or doing it in a less-than-professional manner. E&O policies also typically cover things like copyright and trademark infringement, invasion of privacy, failing to get a model or property release, and related issues. Returning again to the examples above, E&O insurance would cover the photographer who failed to capture key moments or who lost the camera’s memory cards. Note, though, that in the case of the memory cards, the E&O insurance would cover claims made by the client against the photographer for losing the images, but the cards themselves would be covered, if at all, by the photographer’s equipment policy.
Many insurers will bundle these three coverages together into what’s sometimes called a package policy so that you can address all your insurance needs with one payment. Some insurers also offer discounts if you buy multiple policies together.
Understanding an Insurance Policy
Most insurance policies, no matter what they cover, share a number of common characteristics. Being aware of these characteristics, and how to evaluate them, will help you make the right decisions for your business.
First and foremost, you’ll want to know how much the coverage is going to cost which, in insurance parlance, is called the premium. In return for the premium you pay, you receive certain coverages (several types of coverage are described above), the limits of which, expressed in terms of a dollar amount, are prescribed in the policy document. Some policies will cover all risks (sometimes also referred to as “perils”) that may result in a loss, but it’s more common to have either a list of risks that are covered (e.g., fire, flood, theft) or a list of exclusions (e.g., water damage, terrorism, acts of war).
Most policies also include a deductible, an amount that the insured is required to pay in the event of a loss (in commercial insurance it’s sometimes referred to as coinsurance). Put another way, insurance policies rarely cover 100% of the relevant risks – the insured almost always retains some portion of the risk. That amount of retained risk is represented by the deductible. As you might expect, there is an inverse relationship between the deductible and the premium: the higher the deductible, the more risk stays with the insured, and the lower the premium becomes.
Why do most policies include a deductible? The theory is that if you bore no responsibility for a given risk, you would have no incentive to avoid it, which is contrary to the insurance company’s interests (policy experts call that dynamic a moral hazard). By requiring that you retain some portion of the risk, the policy encourages good behavior on the part of the insured.
One important characteristic to be mindful of in property policies is the distinction between replacement cost and actual cash value. Replacement cost, as you might expect, cover the full replacement cost of the insured property in the event of a total loss, whereas actual cash value (ACV) policies, cover the value of the property, less any depreciation, which is only a fraction of what it would cost to replace the item. Of course, you can expect the premium for a replacement cost policy to be higher than an ACV policy, but as a general rule, to maximize your coverage, you’ll likely want a replacement cost policy.
A Special Note About Gear Rental
Gear rental houses have gained in popularity in recent years and in many cases, renting instead of buying can be a great way to try out new equipment or use equipment that would be cost-prohibitive to buy. Keep in mind that when you rent equipment from a third party, you’re legally responsible for that equipment while it’s in your possession. Many of the major rental vendors will sell you a so-called “protection plan” that purports to function like insurance on the rented gear. Buyer beware, however: many of these plans are very limited in scope, and specifically exclude some of the most common risks to rented gear, such as water damage.
Professional equipment insurance often includes coverage for rental and loaner equipment, and if it doesn’t, you can typically buy an endorsement to add such coverage (an endorsement is the term the insurance industry uses to describe a rider or an add-on, to an insurance policy). Check with your insurance carrier to confirm, but in many cases, you’ll be better off skipping the “protection plan” and relying primarily on your own insurance.
Filing a Claim
Each carrier has different procedures for handling claims, but generally speaking, you need to make them aware of the claim as soon as possible after incurring a loss. For many claims, insurance companies require a police report that documents the facts and circumstances of a particular incident; at a minimum, you want to make sure to document what happened, and where and when the loss occurred. If it’s possible (and you can do so safely), take pictures of any damage that occurred and the circumstances surrounding it.
Many liability and E&O policies require that you notify the insurance company as soon as you become aware of a possible claim, even if no formal action has been taken. Failure to follow the insurance policy requirements can result in the outright denial of a claim, so it’s important to understand the procedures set forth by your carrier. Take some time to review those procedures when you first buy your policy or policies, so you’re not scrambling to figure it out when a claim arises (and when you’re undoubtedly already under significant stress).
If you already have insurance, then good for you – you’re one step ahead. Make sure to read and understand your policy so that there are no surprises when you need to use it. Reevaluate your insurance needs every year or so, or whenever you make changes to your business or acquire new equipment, to make sure that the coverage you have is still relevant and sufficient.
If you don’t have insurance, you should consider buying it. Virtually all of the major trade associations have developed insurance programs with major insurers that fit the unique needs of photographers. For example, the American Society of Media Photographers has established relationships with Taylor & Taylor and Tom C. Pickard & Co. The Professional Photographers of America have put together an insurance program through Lockton Affinity. There are dozens of others, and the insurance industry is relatively competitive so be sure to shop around. That said, as with so many things, with insurance you tend to get what you pay for, so make sure you’re buying the coverages you need to protect yourself.
It can be a little frustrating spending all this time to understand something that you hope you’ll never need, much less having to pay for it, but if you do ever need it, you’ll be enormously grateful that you have it.
What have been your insurance experiences? What policies do you recommend?
Chris Reed is a Los Angeles-based photographer and lawyer. He practices copyright law in the media and entertainment industries and is the author of Copyright Workflow for Photographers: Protecting, Managing, and Sharing Digital Images from Peachpit Press.