Film Financing Trial Starts in London

Another trial in the ongoing dispute between insurers and lending banks over claims payments covering the production and distribution of motion pictures and TV productions goes to trial in London today, as the Royal Bank of Canada seeks to recover on film financing policies issued by several commercial insurers and Lloyd’s underwriters.

The insurance companies, including giants such as AXA and AIG, have admittedly got into an area that was beyond their expertise. Financing film production is highly specialized, and while completion bonds has been standard industry practice for years, “gap financing” and revenue insurance are relatively new, and highly speculative.

The standard completion bond is very close to a business interruption policy. It basically insures that the film will be made. The newer types of policies cover the difference between the amounts raised from the sale of distribution rights, and the actual cost of finishing the film – gap financing; and in many of the cases at issue the difference between the cost of production and the revenues received.

The insurers, including AXA and AIG’s New Hampshire subsidiary, as well as a number of Lloyd’s syndicates have refused to pay on these latter types of policies, alleging that misrepresentations were made, that the films weren’t completed on time, or that many were in fact never made at all. The lenders, usually banks, have insisted that the policies are akin to surety bonds and guarantees, and are payable unless the insurers can prove an actual fraudulent intent.

So far the results have been mixed. Several cases in the U.K. have found for the insurers, but several more in the U.S. have sided with the banks. Royal Bank is seeking to recover between $12 and $13 million, but the other cases awaiting trial have put over $1 billion at stake, making the outcome of this case all that more important, as it could set a precedent for the larger sums involved in later trials.

Topics London