You may recall that in May 2013, the D.N.A.M. Apparel, a Los Angeles clothing company responsible for manufacturing and marketing actress Lindsay Lohan's collection of leggings, filed a $5 million lawsuit against the actress, claiming that buyers began canceling appointments and orders, and Lohan, who was the face of the company, was in rehab at the time and unable to endorse the brand. Well, apparently Lindsay Lohan isn't the only celebrity to result in woes stemming from a brand endorsement role. In fact, it must be so common that American International Group Inc.
AIG is introducing a new insurance product geared toward companies that are compelled to recall products or services endorsed by a celebrity when the partnership goes awry. According to a statement from AIG, its newest insurance coverage option, entitled Celebrity Product Recall Response, is designed to help companies deal with risks incurred from a celebrity spokesperson’s “public fall from grace, scandal or unexpected death,” and it helps with costs incurred in recalling products bearing the name or image of the celebrity.
Lexington Insurance (the AIG member offering the insurance) president and CEO Jeremy Johnson said: "Celebrity Product Recall Response was developed expressly to address exposures companies take on when they associate with well-known individuals to promote their brands. The new insurance will assist brands in dealing with the fall out as a result of a celebrity drug scandal, domestic violence charge, or hate speech, for instance, and is triggered by significant news media coverage of an endorser’s actual or alleged criminal act or other distasteful conduct that results in — or is likely to result in— “public contempt for the individual and a significant adverse impact on a company’s product.”
Following such an occurrence, a brand's "next move may be to back away: terminate the contract, cancel the advertising and pull the physical product if its celebrity-branded," which is not without serious costs to a brand. The new coverage will reportedly range up to $1 million in aggregate if purchased as an endorsement – that is, a supplement to an existing policy – or $5 million for a standalone policy. Premiums are a minimum of $15,000 for $1 million coverage or $50,000 for $5 million, and depend on coinsurance, self-insured retention (deductible), the nature of the product and, of course, “what experience has the celebrity had in behaving badly.”
Johnson further stated: "In this age of social media and instant news, reports of indiscretions by celebrities or high profile athletes can spread worldwide instantly, with swift, adverse implications for products or brands associated with the individual." According to WSJ, AIG's new product is the latest in a long line of novel offerings from the insurance industry over the past several years. "In recent years, insurers have built markets for cyber-attack insurance, identity-theft coverage and wedding-cancellation policies, among other niche offerings.
And in the same vein as the celebrity product-recall protection, AIG in 2011 launched something called ReputationGuard that covers the cost of hiring crisis-communications experts when a company faces bad publicity."