Many brands rely on commercial relationships with high-profile celebrities and sports personalities to promote their products and image. The potential synergies that can be achieved through commercial endorsements are huge: brands can anticipate increased sales and recognition, while celebrities could receive vital sponsorships and publicity. In all, it's a win-win situation.

The flip-side of this rosy partnership is that, when the celebrity endorser falls from grace, it could drag the brand down with him or her. In such circumstances, brands may well decide to distance and/or dissociate themselves with the individual(s) concerned for brand preservation. This could result in potentially significant financial losses where the advertisement campaign featuring the celebrity needs to be cancelled or re-shot, for example, not to mention the reputational damage and the consequent adverse effect on sales.

The sporting industry has particularly been hard hit by negative scandals in recent years. When Maria Sharapova, who was at the time the highest-paid female athlete, failed a drug test for taking a banned substance, she lost her deals with Porsche, American Express and Avon, although other brands such as Nike stood by her. Back in 2012, Lance Armstrong reportedly lost an estimated $150m when 11 of his sponsors dropped him when the U.S. Anti-Doping Agency released a report containing evidence that the seven-time Tour de France champion had taken and concealed his use of banned substances. Elsewhere, Wayne Rooney was famously dropped by Coke Zero in the wake of his sex scandal, while a drunken scandal cost Ryan Lotchte, an Olympic swimming star, his lucrative sponsorship with Speedo.  The financial loss of these individual stars is itself becoming the subject of insurance interest.  However, more established is protection for businesses when they are forced to sever relationships with a celebrity. 

Protecting the brand from such scandals is a key concern for big commercial names, especially as the internet and the rise of the social media have meant that not only are the celebrities under increased scrutiny from the public eye, any bad news could go "viral" very quickly, potentially causing reputational damage in a matter of minutes. In such an environment brand managers are increasingly turning to "Death and Disgrace" insurance to mitigate such risks. This can protect against the costs incurred in producing the insured campaign, including (amongst other things) reproducing advertising material; reimbursement of the performer fee; and the costs of media material which cannot be used due to disgrace, death or disablement of the celebrity. Such insurance usually costs around 0.5%-1% of the sum insured which, considering it is seeking to protect the company's most valuable asset – its brand – can often be a worthy investment.

Brand managers are well advised to ensure that such policies provide adequate scope of cover. In this regard, unlike death and disability, "disgrace" is often a subjective concept. Lloyd's, the world's leading provider of this type of insurance, defines this as "any criminal act, or any offence against public taste of decency...which degrades or brings that person into disrepute or provokes insult or shock to the community". This may seem straightforward at first, however what amounts to an offence against public taste or is seen to be degrading could be open to interpretation.

Of course, in most cases there will be an existing endorsement contract between the brand and the celebrity. The contract will in most cases include a "morality clause", which effectively imposes an obligation on the celebrity to behave in an acceptable manner. Brand managers would want to ensure that the definition of "disgrace" is tied into and is as wide in scope as the morality clause in the endorsement contract and Underwriters will want to ensure they obtain details of any such clause.

Policies also often exclude actions that are not out-of-character. For example, the standard Lloyd's wording excludes "any action of the insured person that is consistent with the known public persona or behaviour of that person which gives rise to offence, insult and the like". This may exclude cover for a particularly flamboyant rock star's drunken antics, for example, although this is unlikely to exclude a loss if a "clean-image" celebrity is caught taking cocaine. Underwriters would no doubt wish to consider the individual's "known persona" carefully when underwriting the risk.

In light of the above the proposal form or additional questions should be carefully tailored to the individual, where possible, as well as more general requirements such as details of celebrity's medical history and criminal offence record.  It might also be useful to ask for a description of the individual's "known public persona" from the proposed insured, which, whilst not currently a standard question, would provide greater certainty to both sides as to what will be considered consistent or inconsistent in the event of a claim.

Another aspect to bear in mind is the policy period of the insurance. This is often limited to the period of the endorsement contract with the celebrity. However, the advancement of technologies such as YouTube means advertising campaigns can now be viewed for a long time after a campaign has officially ended and, therefore, have a potential to cause damage even after the commercial tie-up with the celebrity has ended. Policies also usually contain a requirement that it must be kept confidential, since knowledge of insurance cover may affect the celebrity's actions and behaviour.  Recovery against a celebrity for particularly egregious behaviour should not be ruled out.

With commercial endorsements being such big business, and with the concept of celebrity being ever more transient, insurance of this type has an interesting role to play.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.