Insurance companies, looking to make up revenue in a world of increased risk, have hiked their premiums and deductibles on libel and copyright infringement policies, a move that could have a deep impact on book publishing.
As a result of these hikes, the National Writers Union recently dropped its libel insurance policy for authors. Last week, Random House announced it will pass along some of these higher costs to authors. Random said that because its deductible has been raised from $100,000 to $1 million and because it couldn't find any appropriate policy that covered legal costs, authors will now have to kick in as much as 20% of their advance, instead of 10%, to cover damage judgments, settlements and attorneys' fees. If a claim is successfully defended (i.e., if there is no monetary award), the author could be charged for 50% of attorney's fees, providing that amount does not exceed 20% of the advance.
So if, for example, an author with an advance of $500,000 is found liable for damages of $200,000, he or she would be obligated to pay $100,000 (20% of the advance). If the author is not found liable and legal fees are, say, $150,000, she would have to pay $75,000 (50% of legal fees). Under the old policy, the writer would have been obligated to pay $50,000 (10% of the advance) in the case of liability, and $50,000 if there was no liability (10% of the advance—and below the old deductible).
Copyright infringement liability, which always stood at 20% of the author's advance, will remain there, though, of course, with the higher deductible, an author may sometimes wind up owing more anyway.
Random explained that the policy, while not ideal, was the best it could find in this climate. Not ideal seems to be the operative phrase: beyond $1 million, the new policy still requires that Random House pick up 20% of the bill, all the way up to $10 million. (At that point, the author becomes liable, but Random points out that such an instance is nearly unheard of.)
Linda Steinman, director of litigation for Random, said the higher insurance costs won't have a chilling effect on books published by the company. "Publishers make the decisions on what is published, and they will continue to produce solid nonfiction works," she said, noting that only an "infinitesimal" percentage of books published by the company ever face a libel charge. The policy went into effect July 1, though Random said that authors with older contracts will have their cases decided on an individual basis.
Other publishers are likely to change their policies. A Simon & Schuster spokesperson said the company's policy toward authors was "under review" as a result of its difficulty in finding favorable insurance terms, and insiders say it's only a matter of time before other large publishers shift more onus onto authors. Smaller publishers may have it even harder: many are unlikely to be able to afford the new policies at all, meaning that the very publishers most likely to take on controversial work will be the least capable of absorbing the risks. "What about small publishers?" asked Author's Guild head Paul Aiken. "This may create a barrier to even entering publishing."
Others wonder if there will be a chilling effect on writers. "There's no doubt you're going to have authors thinking twice, and society will be the poorer for it," said Jonathan Tasini, head of the National Writers Union. "The books that might not get written are the ones that most need to see the light of day."
Tasini said he hoped publishers would be more willing to find creative solutions, like perhaps increasing royalty rates in the case of controversial authors. "I understand that the insurance market is generally abysmal," he said. "But the situation is not fair. Publishers are increasing the risk without increasing the reward. We need to find a way to make this work."
Agents seemed apprehensive about Random's move and what it portends. Aaron Priest said he wanted to see what other publishers would do, but if they make similar adjustments, it would be very hard on authors. Harvey Klinger said it was "fairly terrifying" for authors. He suggested that authors should no longer depend on their publishers for insurance coverage: "I'd urge them to go out and get a commercial umbrella policy immediately."
