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Is Your Product's Endorser in Trouble?

Disgrace coverage and other things to consider before a celebrity endorsement in California

Celebrity endorsement deals are an often used in advertisements. But what happens when an endorser like Lance Armstrong becomes the pariah of a doping scandal, or Tiger Woods has a very public falling-out with his wife? What is a company to do with the millions of dollars of advertising research, marketing management and consumer behavior? The answer is disgrace coverage.

That’s right: A form of insurance coverage that is often paired with disability insurance is now being offered to companies as disgrace coverage. And it includes protection from unlawful acts and offensive statements by a contracted spokesperson whose image has been licensed on consumer items, as well as insurance for a commercial campaign that fails due to a disgraceful act. Essentially, the coverage protects your business in case a celebrity spokesperson behaves in a disgraceful manner.

It further entitles companies to reimbursement for money paid to secure the disgraced celebrity’s endorsement, hire a substitute spokesperson, reshoot or reproduce the advertising material, and remove the spokesperson’s image from product packaging.

For the most part, the consumer purchase premiums are less than one percent of the coverage; for example, a $1 million policy will generally run you between $5,000 and $10,000. This cost may increase for a riskier celebrity.

Of course, disgracing a brand is a subjective term. Some policies exclude actions that are consistent with the person’s behavior. So, when someone like, say, Rosanne Barr says something in line with her character, the policy may not pay out. However, if a tweet of hers ends up getting her series reboot cancelled, it may be more likely that the policy would pay out.

Specifically, policies will cover “any criminal act or any offence against public taste or decency committed by the insured person; or, any situation or occurrence directly involving the insured person which degrades or brings that person into disrepute or provokes insult or shock to the community, and reflects unfavorably upon the insured campaign or the insured, their principal(s) or product(s).”

Therefore, while the late-night escapades of Justin Bieber or Lindsay Lohan may not seem out of character, if they are convicted of a crime, disgrace insurance could kick in. Unfortunately for many businesses, there is no case law on these policies yet; they’ve haven’t yet been litigated.

Insurance companies have additionally noted that, for policyholders, there is a time limitation. Though famous ad campaigns and a celebrity’s fame can last decades, disgrace coverage policies only cover the period of time during which the spokesperson is under a contract. So while you are taking a risk with a celebrity endorsement, for every Subway’s Jared there are many more like Flo from Progressive. 

As a business owner, you must be certain that you are protected and insured properly when you attach a product those at the top. Be certain to consult with a reputable and experienced insurance coverage attorney to ensure the future is always bright, no matter what your celebrity spokesperson may do on social media platforms. For more information on this area, see our insurance coverage law overview.

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