By Shaun H. Crosner & Fiona Chaney of Dickstein Shapiro LLP
1. Choose your athlete or celebrity spokesperson carefully
An endorsement from the right spokesperson can generate positive buzz for your company or product, but certain athletes and celebrities may be difficult or costly to insure. For instance, all other things being equal, it is more expensive to insure an older spokesperson than a younger one due to the increased death risk. Insurers also frequently charge higher premiums to insure athletes and celebrities who have previously been diagnosed with a serious medical illness. Similarly, if you are considering a partnership with an athlete or celebrity spokesperson with a checkered past, it likely will be expensive to insure the disgrace risk. Not surprisingly, insurers generally charge higher premiums to insure athletes and celebrities who previously have been the subject of scandal involving criminal misconduct, drug or alcohol abuse, or domestic violence. This added cost may factor into your company's decision to partner with a particular athlete or celebrity. It is also important to note that, as a condition of coverage, many insurers require an insured spokesperson to sign a warranty regarding his or her lifestyle, consumption of alcohol, or drug use. Some athletes and celebrities are not willing or able to make such warranties, which may complicate your company's ability to obtain insurance to cover your marketing or advertising campaign. Therefore, if your company is determined to insure your campaign, you should confirm at the outset that your anticipated spokesperson can and will provide any warranties required by your insurer.
2. Understand where your costs lie
Death and disgrace coverage can protect a company against the wide-ranging financial losses that can follow a spokesperson's death or public scandal. For instance, such policies can reimburse a company for the cost of hiring a substitute athlete or celebrity spokesperson or the cost of reshooting or reproducing the advertising material in question. Death and disgrace policies also commonly cover the costs associated with removing a dead or disgraced spokesperson's image from product packaging. Some policies also reimburse the insured company for the money paid to the former spokesperson to secure his or her endorsement. Not all policies provide the same scope of coverage, so it is important to understand where your company's costs will lie if the insured campaign does not go as planned. For instance, a company that pays tens of millions of dollars to an athlete or celebrity spokesperson will likely want a policy that would allow it to recoup some or all of this investment in the event of a loss. Other companies may place greater emphasis on coverage for the costs associated with removing a spokesperson's image from product packaging. Conversely, a primary concern for some companies is having the financial flexibility to hire a substitute spokesperson and reproduce the advertising material. Whatever the case, it is important that your company assess its coverage needs well in advance of purchasing a policy.
3. Communicate your coverage expectations to your broker
Death and disgrace policies are non-standard, which means that their terms and conditions can vary, in some cases, significantly. To ensure that your company purchases a policy that meets its precise coverage needs, it is important to provide your company's insurance broker with as much information as possible regarding the advertisement or marketing campaign that your company is looking to insure. Doing so will allow the broker to canvass the marketplace, both domestically and abroad, to find a policy that meets your company's needs and expectations.
4. Understand the limitations of morals clauses
When a company's athlete or celebrity spokesperson is involved in a public scandal, the company may find it necessary to cancel or change its marketing campaign. Because such action can be costly, a company may attempt to recoup its losses through litigation against the disgraced spokesperson. A company taking this approach will typically rely on the endorsement contract's morals clause, which is intended to restrain or proscribe certain conduct on the part of the athlete or celebrity spokesperson. A broad morals clause may, for instance, proscribe the use of illegal drugs or the abuse of alcohol. It is also common for morals clauses to prohibit criminal misconduct or behavior likely to lead to negative publicity or scandal. Although a strong morals clause can provide some protection against the fallout from a scandal involving an athlete or celebrity spokesperson, litigation against a disgraced spokesperson is not always in your company's best interest. Such litigation can be costly and unpredictable, and it may have the undesired effect of further highlighting your company's relationship with the disgraced individual. Death and disgrace insurance, on the other hand, can allow a company to quickly and quietly distance itself from a disgraced spokesperson - without needing to resort to litigation against the individual.
5. Make sure that your policy's definition of "disgrace" is sufficiently broad
The concept of "disgrace" is somewhat subjective, and an insurer may not always agree with its insured that a particular scandal is sufficiently "disgraceful" to constitute a covered loss. To reduce the chance of a coverage dispute, your company should purchase a policy that defines the term "disgrace" broadly enough to capture any conduct that your company might find contrary to its image or advertising campaign.
6. Be thorough and accurate when completing the application for coverage
Applications for death and disgrace coverage commonly include questions and requests for information regarding the medical history of the spokesperson and the particulars of your marketing or advertising campaign. Insurers use this information to determine the price of coverage and decide whether or not to insure a particular campaign. Because inaccurate representations in an application may provide an insurer with grounds to contest a claim in the event of a loss, your company should strive to provide accurate and complete information on its application for coverage and should work closely with the insured spokesperson when completing the application.
7. In the event of a loss, provide prompt notice of the claim
Insurance policies invariably require prompt notice of all claims, and in some cases they may specify a precise time-frame in which notice must be given following a loss. In order to minimize coverage disputes, your company should endeavor to notify your insurer as soon as it appears likely that a spokesperson's death or personal disgrace will result in a claim. However, a delay in providing notice will not necessarily result in loss of coverage. Many states require insurers to establish substantial prejudice before they can escape their coverage obligations based on an insured's failure to comply with provisions requiring prompt notice. Nonetheless, as a general rule, insureds should err on the side of providing notice or a claim as promptly as possible.
8. Strive to submit a timely proof of loss
In addition to requiring prompt notice of the claim, many death and disgrace insurance policies require that the insured company submit a detailed "proof of loss" within some specified time-frame following the death or public disgrace of the insured spokesperson. The proof of loss gives the insured the opportunity to document its claim and describe the losses that it has suffered. This process could, among other things, entail providing the insurer with copies of canceled checks, relevant contracts, and invoices and receipts pertaining to amounts spent in response to a loss. To simplify the claims process, your company should maintain detailed and comprehensive records for those expenditures that it will include in its claim, and it should also strive to submit all requested information and documentation to its insurer in a timely fashion.
9. Communicate with your broker and insurer throughout the claims process
Claims arising under death and disgrace policies are not always straightforward, and decisions made in the wake of a spokesperson's death or personal disgrace may be the subject of scrutiny during the claims process. This is especially true in the context of six- or seven-figure claims. To ensure that claims are paid and that loss is valued accurately, insured companies should work closely with their brokers and insurers following a loss and communicate frequently throughout the claims process.
10. Be mindful of relevant contractual and statutory limitations periods
Throughout the claims process, your company should be aware of timing-related limitations concerning the right to initiate litigation or arbitration against your insurer, should you deem such action to be necessary. In some cases, the express terms of a policy will dictate the time-frame in which the insured can file suit; in others, statute or regulation will provide the relevant limitations period. Either way, your company should be mindful of the relevant limitations period so that it can obtain the full benefits of its death and disgrace insurance policy. And, when in doubt, contact coverage counsel to help guide your company through the process.
