In “The Perfect Storm,” sex symbol George Clooney portrays brave Captain Billy Tyne who goes down with his ship, The Andrea Gail, only after failing to anticipate the storm of the century.

Right? Wrong.

According to Tyne’s former wife and relatives of crew members on the Gloucester, Mass., fishing trawler, the film casts Tyne and others portrayed in the movie in a negative light, and was produced without their consent. So they have sued Warner Bros. for a cut of the movie’s gross revenues, which top $180 million.

Lawsuits like that one are nothing new in Hollywood, where everybody wants a piece of the action, especially off a moneymaker. But with ticket prices and grosses escalating, and the absorption of the studios into gigantic media conglomerates, damage claims and legal fees also are on the rise.

And now insurers, which indemnify Hollywood for so-called “errors and omissions” actions, commonly referred to as producer’s liability insurance, are taking steps to protect their own bottom lines.

Insurers that write the coverage, which are purchased by everyone from scriptwriters to major studios, are raising premiums, deductibles or limiting coverage.

No sector has been hit harder than the studios themselves. Major names like Fireman’s Fund Insurance Co., Chubb Corp. and CNA Financial Corp. no longer write policies. That leaves the studios largely in the hands of industry giant American International Group Inc., which is in the midst of radically restructuring its policies that will result in even higher insurance costs.

“The insurance basics are pretty obvious: You collect a dollar and you hope to pay out less than that, and we have to change to make money,” said Rennie Muzii, who oversees AIG’s producer’s liability insurance coverage as a vice president for a company subsidiary.

Producer’s liability insurance, or entertainment E & O;, covers legal costs stemming from claims of copyright or trademark infringement, unauthorized use of content, invasion of privacy, defamation and related actions.

Waning interest

The coverage has been purchased for decades, but those within the insurance industry say it has become less and less attractive to write over the past five to seven years, as damage awards have risen.

“There haven’t been a lot of rewards in the business from an underwriting profit standpoint,” said Brian Kingman, senior vice president with Aon/Albert G. Ruben Insurance Services, a leading Los Angeles entertainment industry insurance broker.

Earlier this year, a Michigan jury ordered Twentieth Century Fox Film Corp. to pay $19 million in a copyright infringement case after concluding that the studio stole the idea for the 1996 film “Jingle All the Way” from another script. The studio has asked the judge to set aside the judgment.

Chubb stopped writing E & O; coverage for the studios more than five years ago, after it also stopped writing “blanket” coverage for studios’ general liability and other claims.

The insurer still writes E & O; coverage for independent production houses, as well as television and Broadway, but says that insuring big-budget movies is a money loser.

“You’ve got a very successful film that makes millions of dollars and someone raises their hands and says, ‘That was my idea for a movie,'” said Gene Williams, Chubb’s manager of worldwide entertainment. “Whether it’s true or not, the defense costs millions.”

Fireman’s Fund stopped writing E & O; insurance for the majors in 1997, though it continues to write such policies for independent production houses. Among the reasons? Copyright infringement just became too hard to police at the majors, where multiple creative types often have their hands on a script, said John Kozero, a spokesman for the company, which also writes other policies for entertainment companies.

Studio view

Most of the studios did not want to talk about their rising E & O; costs. However a source at one studio acknowledged it is being hit hard.

“The market has become very hard and tight, and it’s much tougher to buy insurance,” said the source. “You have a litigious society, and people will come at you left and right on hit films, saying ‘You appropriated my idea,’ and juries are not very sympathetic to producers.”

AIG, the country’s largest insurer, entered the E & O; market in 1994, believing it could make money on it. The company found out the hard way that profits are tough to come by, even though blockbusters regularly generate $100 million or more in revenues for studios, now part of huge conglomerates.

“As that pot of gold grows, the settlements have gone up, the legal expenses have gone up, but the insurance (revenue) has not responded commensurate with the risk to the insurance industry,” Muzii said.

Studios had been accustomed to deductibles (technically called “retentions,” because the studios pay the amount up front with each claim) of $50,000 to $250,000, he said.

AIG immediately hiked its retentions, and now refuses to write an E & O; policy with less than a $1 million retention. But even that was found to be insufficient.

So AIG has come up with a “blended” policy, which it is trying to sell to studios, although none has been sold yet.

Under such a policy, the studio would be required to pay a predetermined amount (probably $5 million to $15 million) into an AIG-managed fund, gradually, over two to five years.

On any claim payout, the studio would first have to pay its retention amount. Then, any claim in excess of the retention amount would be paid out of the fund. Only after the entire fund is exhausted would the insurance coverage kick in. And the amount of that coverage would typically be capped at $25 million to $50 million.

If the fund is not exhausted by the end of the policy term, AIG would refund a pre-negotiated portion of the unused amount back to the studio.

Muzii said he believes the studios will accept the new “blended” coverage, because it may provide certain tax advantages. If they don’t, there are few options outside of creating shared-risk pools or their own independent insurance companies.

“The market has pretty much dried up, and if we can’t demonstrate a three-to-five-year profitability on this (coverage), we won’t write it,” he said.