Yesterday, American International Group, Inc.’s (AIG) Commercial Insurance division announced the rollout of new insurance product, dubbed Celebrity Product RecallResponse, which is “designed to help customers respond to risks from a celebrity endorser’s public fall from grace, scandal, or unexpected death.”

In essence, the “scandal insurance” helps curb the losses that a brand may face when its chosen celebrity spokesperson takes a hit (pun not intended), sending the brand’s products down with him or her. According to AIG, the scope of coverage generally includes the costs of removing products, marketing and advertising materials bearing the celebrity’s image from the marketplace.

By way of example, a product like Celebrity Product RecallResponse may have been useful for DNAM Apparel, Inc., a company that entered into an exclusive trademark and licensing agreement with Lindsay Lohan’s clothing brand, 6126, LLC. When DNAM could not sell the Lohan-endorsed products (mostly leggings) and failed to pay contractually-owed minimum royalty amounts to 6126, the parties’ dispute ended up in federal court, with DNAM alleging in a counterclaim Lohan failed to “maintain the quality of the trademark” in light of her “public drug and alcohol addiction.”

Insurance coverage for losses resulting from a star’s indiscretions has some precedent in the film and television industry as well. CNA International Reinsurance Co. v. Phoenix arose out of the widely-publicized death of River Phoenix, who died of a drug overdose before the completion of the filmsDark Blood and Interview With the VampireCNA Int’l Reinsurance Co. v. Phoenix, 678 So. 2d 378 (Fla. Dist. Ct. App. 1996). As a result of Phoenix’s death, the production entities involved were forced to abandon Dark Blood and complete Interview With the Vampire with the services of another actor. The litigation involved a number of complicated subrogation and contractual issues, but eventually ended up with insurance companies CNA and American Casualty, which issued entertainment package insurance policies covering the productions, being stuck with the resulting bill, even though CNA argued that Phoenix caused the loss by “deliberately taking illegal drugs in quantities in excess of those necessary to kill a human being.”

Although the new AIG policies will undoubtedly contain a panoply of insuring provisions, conditions and policy exclusions that will govern whether coverage is available in specific circumstances, there are a number of scenarios where this type of coverage will come in handy – especially given the volume and frequency at which celebrity indiscretions are reported as “news.”