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Liability insurance for writers; taxes and incorporation
Published: December 3, 2002 Do writers need liability insurance? What situations call for it? What types of policies are available to writers?
I wish the answer to this question were not so grim. In short, book and freelance authors should have liability insurance but may find it very difficult to obtain. Virtually every book publisher and a significant number of periodicals include so-called "warranties and indemnification" clauses in their contracts with authors, which obligate the authors to guarantee that their works do not defame, injure, trespass upon or infringe intellectual property rights belonging to anyone, and to cover all the publishers' costs--yes, even their attorneys' fees--in the event someone sues over the work in question.
Even if a suit has no merit, the costs of defending it can snowball rapidly, and you will be on the hook for them. Until a few years ago, some publishers would agree to hold authors responsible only in the case of an actual judgment of liability. (Random House is the only one that limits your exposure if a suit has no merit.) You can try to negotiate this into your contract, but very few publishers will agree to revise their boilerplate warranties and indemnification clauses, often claiming that their own insurers will not allow them to make changes for any covered author.
If at all possible, it's crucial to have your publisher include your work under its own liability insurance. But even this offers only lukewarm comfort, because the deductibles on these policies are enormous, from a $50,000 minimum up to $250,000 under Random House's new coverage. Make sure you ask your publisher if it has media insurance, and if it does not, negotiate hard to limit your liability to paying only for final judgments against your work.
A few insurers offer so-called "gap" insurance, covering the portion of the publisher's deductible that falls on the author. One agency, Media/Professional Insurance, can obtain coverage for individual authors, but it does not take applications from individuals. You must apply through a licensed insurance agent or broker. For more information, visit their Web site, www.mediaprof.com. or call 816-471-6119.
Should freelance writers incorporate? Are there any tax advantages in doing so?
If you want to incorporate solely to avoid legal liability for your writing, prepare for more disappointment. Most likely, you will not be able to do so. For one thing, your publisher will almost certainly require that you personally provide the warranties and indemnities in your contracts, even if the party signing the contract is the corporation. Second, most states do not allow an individual to escape personal liability for committing defamation or other torts, even if a corporation is the legal "author" of the offending writing. Add to these dead ends the costs of hiring a lawyer to incorporate your enterprise, and you might reasonably conclude that it isn't worth trying.
There could, however, be tax advantages to your incorporating, according to Jon Taylor of the New York City accounting firm Spielman, Koenigsberg & Parker. Authors' earnings are reported on Schedule C of their federal income tax returns. Should you incorporate, and if your Schedule C income is low relative to your other sources of income, you might be taxed on your Schedule C income at a lower corporate rate than the rate for personal income. Moreover, segregating your Schedule C income from other income sources could place you into a lower tax bracket than you might otherwise fall into. No formula exists to determine whether and to what degree you might obtain tax benefits from incorporating. It depends on your specific income situation in any given year. Therefore, it is crucial to consult a knowledgeable tax accountant or tax lawyer.
This month's questions are answered by Kay Murray, general counsel of Authors Guild, Inc. and co-author of The Writer's Legal Guide: An Authors Guild Desk Reference. |
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