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Why do game devs need professional indemnity insurance?
This is the fourth post in a series by Euan McKenzie of Central Insurance. You can see the whole series here.
In the past, some cynical types have questioned the value of buying professional indemnity (PI) insurance, beyond satisfying a customers’ contractual requirement to do so.
The reasons are generally a perceived lack of “risk,” or lack of previous problems and a perhaps general mistrust of insurance companies (or frankly, a combination of all three) but there is also a general lack of awareness of what PI Insurance actually does.
In the last article, I identified that a good PI policy will provide games developers with cover for claims that arise from allegations of breach of contract.
This is a great “headline,” but contractual responsibilities are variable and potentially huge, and even the best policy has limitations.
As such, I thought it would be helpful to look at some of these limitations in more detail and give more of an understanding of the cover you can expect.
Third Party Consequential Loss
You should have cover for “Consequential Loss” claims (e.g. a loss of profit, or increased costs that a claimant suffers due to a contract breach).
Cover is conditional upon including some kind of “cap” or exclusion in the original contract (or at least demonstrating that this was attempted).
This is probably the most important issue that relates to cover under the policy, as consequential losses are amongst the greatest financial risks.
The policy should cover claims that arise from the work of external content providers (art, audio, etc) but will require some kind of advance check that:
Nothing prevents insurers getting their money back from the provider if their work results in a claim (watch out for restrictions in any providers’ T&Cs!) and
The provider has insurance cover, normally at the same level.
This is good practice regardless, as the developer is the “target” if something goes wrong, as their name is on the contract.
Policies will have some kind of exclusion of claims that result from a developer having inadequate resources to perform the contract at the time of signing.
This is not something I have had to test, thankfully, but worthy of consideration when pitching for any work that will prove a stretch on capacity.
If asked to provide indemnities, or to include another party as “Additional Insured,” (where their name is added to a developers’ policy and they receive the same cover as the developer), advance agreement must be obtained from insurers.
As an aside, “Additional Insured” requirements are pretty extreme terms and should be avoided, if at all possible.
Warranties & Guarantees
Cover for claims arising from breaches of warranty or guarantee is limited.
There should be cover for those involving IP, use of reasonable care or skill and conformance to contract specification/performance standards, but in general, you should keep an eye out for (and avoid, if possible) “absolute” contract terms such as these.
Cover will normally exclude breaches of exclusivity, non-competition, non-solicitation or other “commercial” contract terms, i.e. those that relate more to your conduct, as opposed to performance of the work.
Policies will generally exclude claims made via US/Canadian courts, because of the increased costs associated with litigation in the US, in particular.
If work is undertaken in (or for a client based in) the US/Canada, or a contract is subject to US/Canadian jurisdiction, additional cover will need to be arranged in advance.
All policies have strict conditions about immediate notification of claims, or problems that might result in claims.
Developers should not try and resolve matters themselves, or admit liability, even where they feel they are best qualified to deal with the matter.
Insurers are writing the cheques and they want to be in the driving seat. Going back to them after the event and asking them to pay won’t work!
As such, I think that PI insurance is a must for any games developer, at the point they receive funding or start any development work. Costs start at between £500 and £1,000 annually, for £500,000 of cover (dependent very much on what and how much of it you do).
The policy can be arranged by completing a relatively simple form.
Contractual liability is a complex subject and there are no perfect answers, but working closely with a solicitor and insurance broker can help to identify and reduce the financial risks a developer faces.
Arranging this insurance is what I do for a living, so if you want to find out more, please get in touch.