Kardashian Coverage Conundrums
Last week, Kim Kardashian settled with the SEC after the SEC announced charges against the social-media and reality TV star for promoting a crypto-currency token called EthereumMax, on her Instagram account, where she boasts more than 330 million followers, without disclosing that she received payment for the promotion. Kardashian agreed to pay $1.26 million in penalties, including the $250,000 EthereumMax paid her for promoting its crypto-tokens to potential investors. SEC Chair Gary Gensler stated that Kardashian’s case is “a reminder to celebrities and others that the law requires them to disclose to the public when and how much they are paid to promote investing in securities.”
Kardashian is not alone in running afoul of federal securities regulations in entering the “crypto influencer” market, as many other high-profile individuals—Floyd Mayweather and DJ Khaled, to name a few—have been subject to similar proceedings. This is not Ms. Kardashian’s first claim arising out of influencer social media marketing. In 2015, Kim Kardashian advertised a morning sickness medication on her Twitter and Instagram accounts, praising the drug for combatting her morning sickness, which she described as “pretty bad.” After review, the FDA determined the posts to be misleading because the posts did not communicate any risk information related to the drug and the FDA issued a warning letter to the medication’s manufacturer.
Ms. Kardashian’s recent spat with regulators is one of many legal battles that she and her family members have fought over the years. Those varied claims potentially implicate numerous insurance coverages and serve as a reminder to individuals and companies facing similar exposures that they need a comprehensive insurance program to properly mitigate risk of uninsured losses.
Several insurance products may respond to provide coverage for these and other types of regulatory inquiries and actions. For example, a well-crafted and robust cyber insurance program will often include media liability coverage for claims arising out of website or social media posts. Some policies may provide even broader coverage for wrongful acts such as defamation, copyright infringement or misappropriation of property rights, unfair competition and unfair trade practices resulting from the publishing, broadcasting, blogging, distributing, editing, producing, recording, tweeting or uttering communication though traditional or digital methods.
This coverage, however, may be sublimited or may contain exclusions for certain types of regulatory actions, as well as potential exclusions for deliberate acts and the gaining of personal profits to which the insured is not entitled. Many cyber policies also contain securities exclusions which apply to claims alleging a violation of securities law and some may also contain exclusions for purported violations of consumer protection statutes or for alleged deceptive business practices. More fulsome coverage may be available through a media liability insurance policy purchased separately. Such policies are typically specialized to the type of media engaged in by the insured and can be customized through robust endorsements.
Commercial General Liability Insurance
In 2017, Angela Renee White—known professionally as Blac Chyna—sued the Kardashians for defamation, intentional interference with contract, and intentional interference with prospective economic advantage. Chyna is the ex-fiancé of Rob Kardashian with whom she co-starred in E! network’s reality show Rob & Chyna. Chyna alleged that the Kardashian family “kill[ed]” the reality show’s second season, causing her substantial economic loss. Chyna sought millions in compensatory and punitive damages. Ultimately, however, the jury awarded Chyna no damages. The case was dismissed, but Chyna officially appealed her case earlier this year.
The personal injury section of a commercial general liability (“CGL”) policy typically includes coverage for advertising injury. While this often provides coverage for libel and slander purportedly committed in the advertising of the insured’s goods and services, the allegations in Chyna’s suit don’t appear limited to such acts in the advertising of the Kardashians’ goods and services. Nonetheless, under an insurer’s broad duty to defend—which is implicated even where there is the potential for coverage based on the claimant’s pleading—a commercial general liability insurer likely should provide a defense for this type of suit.
Next, the Kardashians should ensure their businesses have product recall coverage where appropriate. Each of the Kardashian-Jenner sisters own and promote retail and consumer products, increasing their risk of losses due to product recalls. In August, France recalled Kardashian Beauty’s Black Seed Dry Oil because the hair product contains a substance prohibited for sale in the country. Product recall insurance can cover, among other things, expenses associated with pulling a product off the market, including both voluntary recalls and government-mandated recalls.
Product recall coverage can also help businesses mitigate negative publicity relating to the recall by providing coverage for crisis communications/public relations firms. The lost profits (business interruption losses) associated with product recalls may also be covered, and more robust policies will include coverage for malicious tampering, contamination, and product liability in addition to recall-related costs and expenses.
Crime and Property Insurance
Further, AIG paid Kardashian under a private client group policy after she was robbed of $10 million worth of cash and jewelry during Paris Fashion Week in October 2016. Two years later, AIG sued Kardashian’s former body guard in a subrogation action to recoup $6.1 million in losses. AIG alleged that Duvier was negligent in failing to protect Kardashian from the robbery. AIG and Duvier settled the case in 2020, but the details of the settlement have not been released. Presumably, Kardashian’s policy with AIG was a valuables policy that was part of a property policy or suite of policies.
The Kardashian insurance claims also extend to property damage. The Kardashians were among the many celebrity evacuees when the Woolsey-Malibu fire burned through Californian homes in 2018. Kim Kardashian revealed that the fire hit her property in Hidden Hills both in a tweet and in season 16 of Keeping Up With the Kardashians. Most homeowners insurance policies cover fire damage, including damage from wildfires. Policyholders should be aware, however, that some insurers may deny coverage to homeowners living in areas more prone to wildfires, such as Hidden Hills and Calabasas, where the Kardashian homes are located.
Directors and Officers Liability Insurance
Finally, given the Kardashians’ expansive business ventures, they should also ensure they procure robust directors and officers coverage and other appropriate professional liability coverage. D&O insurance is an important risk management tool that protects directors and officers of a company from personal liability if the company is unable to indemnify them. D&O policies can also protect the company’s balance sheets by covering costs paid as indemnification on behalf of covered individuals and by providing coverage for certain claims asserted against the company directly.
D&O coverage should be of particular interest to Kim Kardashian, who recently launched Skky Partners, a private equity fund aimed at consumer and media companies. Many private company D&O policies for private equity firms are coupled with investment advisor and fund liability coverages—professional liability coverages designed to insure claims for purported wrongful acts in the operation of the fund. Investors and executives alike can benefit from robust D&O coverage to protect their personal assets in the event of a claim.
Many corporate and investment risks can be mitigated with a comprehensive risk management strategy that employs the insurance coverages discussed above. Businesses and high-profile individuals, like the Kardashians, should work closely with insurance brokers and consult experienced insurance coverage counsel to help negotiate, procure, and renew policies that can help mitigate the risk of uninsured losses should a claim arise.