Video games: Risky business

Fireman's Fund package addresses risks of producers and distributors

By Phil Zinkewicz

Do you remember “Donkey Kong,” “Space Invaders” and “PacMan”? Back in the 1980s, they were the first wave of what has become a multibillion-dollar phenomenon: video games. Simple and essentially nonviolent, these games were not costly to produce and provided an enjoyable pastime for children and adults.

Even during the 1990s, video games were still relatively inexpensive to produce. The average cost of developing game software was $40,000. Compare that to today, when the cost of produc-ing a video game can be upwards of $10 million. Often these games are tied to movies and timed to hit the market just as the movie is released.

“As the demand for more innovative, challenging and buzz-worthy video games increases, so does the cost of producing the games,” says Joe Finnegan, vice president of entertainment at Fireman’s Fund Insurance Company. “With the price tag on developing game software rising, developers and publishers need to make sure they are carrying the right coverage so they are not at risk of loss.

“For more than 80 years, Fireman’s Fund has insured some of the biggest and most successful productions in the entertainment industry, including ‘The Lord of the Rings,’ ‘Pirates of the Caribbean’ and ‘Superman 3,’” Finnegan continues. “We have brought that experience to the video gaming industry, with added enhancements to meet the specific needs of the industry.”

Finnegan says that right now, most video game producers are improperly insured as business software developers—a far cry from the realities and risks involved in creating software for entertainment. “We realized that the industry carries risks not unlike those found in film and television production, where we already have a long track record,” he says.

Finnegan offers an example of the kind of loss that can occur in developing video games. “With each new technological advancement, such as three-dimensional graphics, artificial intelligence, and enhanced voice and sound effects, the probability of loss increases.

“Game producers also face risks similar to those of the film industry, especially if the game is tied to the release of a major film,” he explains. “A developer might hire the lead actor of the movie in order to film the motion-capturing components of the video game. If that actor were to be injured, on or off the set, and unable to work for several weeks, the developer would still have the expenses of the crew, equipment and facility rental.”

Suzy Wozniak, director of new business development for Fireman’s Fund, offers another example of potential loss. “Let’s say a major motion picture studio hired you to create a segment for the video game version of a soon-to-be-released blockbuster. You’ve spent the last three and a half weeks developing the car crash scene.

“Two days prior to delivery date, your computer, its backup system and $20,000 worth of work is destroyed by a fire in your house,” Wozniak continues. “You beg the studio for an extension and they agree to just two weeks. Now you must pay a freelance developer $12,000 to help you re-create the work you lost. In the end, you’ll have worked over a month only to collect less than a week’s worth of salary.”

Downtime during the creative process or losses as the result of damaged equipment are not the only exposures that the video game industry faces. Finnegan says that the Fireman’s Fund video game package also provides coverage if a third party is injured as the result of a video game. The coverage would come under Fireman’s Fund’s errors and omissions protection.

The violence factor

A major criticism of the video game industry is the violent content of many games on the market. Game producers and distributors have been sued when a player of violent video games has killed or injured others.

In 1997, a shooting spree at a Kentucky high school resulted in the deaths of three students. The parents of those students filed a $130 million federal lawsuit against two Internet porn sites, several video game companies, and the makers and distributors of the 1995 Leonardo DiCaprio film “The Basketball Diaries.”

The lawsuit claimed that the confessed shooter, Michael Carneal, a 14-year-old freshman at the high school at the time of the shootings, was influenced by the violence in the DiCaprio movie and by several violent video games such as “Doom,” “Quake” and “Mortal Kombat.” One scene in the movie features a dream sequence in which the main character, played by DiCaprio, guns down his teacher and some of his classmates.

Parents who filed the suit said they believed Carneal was influenced by the video games he played as well as by the movie. Eventually a federal judge dismissed the lawsuit, saying that it was a “leap” to contend that the video games and the movie precipitated the violent action.

Relatives of people killed in the 1999 Columbine massacre sued computer game makers, claiming their products helped bring about the killings. The suits alleged that the two teenagers who went on a shooting rampage, Eric Harris and Dylan Klebold, were influenced by computer games.

In another incident, a Connecticut woman filed suit against a video game maker after her son died at the hand of a friend as they imitated a fight scene from the “Mortal Kombat” arcade game. The 13-year-old died after a knife wielded by his friend on a Norwalk sidewalk severed his aorta.

To date, no plaintiffs in such lawsuits have prevailed in the courts, but the exposure remains severe, and the cost of defending such actions is high. Finnegan and Wozniak say that the Fireman’s Fund package anticipates all potential exposures.

“This is a cutting-edge product,” says Finnegan. “No other insurer offers this kind of one-stop shopping for the video game industry.”

In addition to video games, the coverage is also available to producers of Web- or computer-based simulated reality programs. Finnegan says the coverage can be custom-tailored for a simple home-based business or for a larger commercial operation.

Basic coverages are property, general liability, auto, workers compensation and umbrella. Specialty coverages include key person protection; media professional liability; props, sets and wardrobe; extra expense; third-party property damage; equipment; and negative film or faulty stock coverage. Also, through International Film Guarantors (IFG), a Fireman’s Fund subsidiary, the company is able to provide completion bonds.

“We are providing insurance solutions that enable developers, designers and producers to create the ultimate gaming experience without the extra risk of potential loss,” says Finnegan. *