Big corporations tend to have insurance to protect them from nearly all imaginable risks. But Sony (SNE) may find it difficult to get its insurers to cover the $100 million or so it's reportedly losing from canceling the release of the film "The Interview."
The decision by the Japanese conglomerate not to release the comedy depicting an assassination attempt on North Korean leader Kim Jong-un is unusual, which makes it hard to classify in terms of insurance, said Brian Kingman, managing director of Gallagher Entertainment, part of brokerage Arthur J. Gallagher & Co.
"These are unchartered waters we are faced with in the new world of computer terrorism," he said in an interview, adding that he had no first-hand knowledge of Sony's insurance practices. "I don't believe there is any insurance covering the voluntary withdrawal of the film from the marketplace."
Because Sony decided on its own to not release the film, it will be tough for it to collect under terrorism coverage because "normally, there has to be some damage to property," Kingman said.
Collecting under extortion insurance could be tricky for Sony because media reports indicate that government officials didn't consider the threats against movie theaters that were scheduled to show "The Interview" to be credible. But theater owners shouldn't be out any significant amount of money because they can easily show another film in place of "The Interview."
Most companies have network security insurance that provides some coverage for computer hacking and the unauthorized disclosure of confidential data to third parties, such as Sony has suffered in the hack that has been linked to North Korea as retaliation against "The Interview."
Sony could get reimbursed for some of its costs related to repairing its network and investigating the hacking, according to Kevin Kalinich, AON's global practice leader who overseas cyber-insurance. But he added that cyber-insurance doesn't cover the costs of stolen intellectual property.
According to a story in the Wrap, Sony has decided to forgo any profit on the Seth Rogen-James Franco film, and isn't planning to release it through alternative distribution channels such as video-on-demand. The company will take a $90 million hit as a result, which is paltry for a multinational company with a market cap topping $23 billion.
Still, the damage to Sony's reputation caused by the hackers' release of loads of embarrassing emails may be harder to quantify.
"I don't know about setting any precedents," said independent media analyst Hal Vogel in an email, who estimated Sony's potential loss at $100 million. "So far, this is a one-off case, but also a lesson that maintaining relationships with creative types should not come at the expense of exposing the entire corporation, shareholders and employees to risk. "
Shares of Sony, which makes everything from TVs to the programs that are shown on them such as "Wheel of Fortune," have surged more than 20 percent this year after posting earnings that were better than analysts expected. Expectations, however, were quite low given the company's struggles in the consumer electronics market it once dominated. Indeed, Sony's net loss widened to $1.2 billion in quarter ended June 30.
Activist investor Daniel Loeb tried and failed to convince Sony to spin off its entertainment business, which he repeatedly called "bloated." He has since sold of his Sony shares.