 Right World of Esports, a show devoted to all things esports. I'm your host, Catherine Norr. Today, we're talking with Christopher Johnson about esports insurance, a favorite topic of mine since I'm an esports and insurance defense attorney. Hi, Chris, welcome. Hi Catherine, how are you? Great, thank you. So we'll dive right in. Okay. Why would an esports organization want to talk with you about insurance? The short answer is that an esports organization is a business and all businesses need insurance. But to put a little meat on the bone, the standard types of insurance that apply to most businesses also apply to an esports organization. General liability insurance, you can think about covering if audience members at an event are injured, workers comp insurance that covers injuries and work related injuries and diseases for employees. You can think about cyber liability insurance if somebody hacks into your network and either steals confidential information or uses your network to access a third party network and does damage to them. That's a cyber liability type claim. You can think of employment practices liability insurance which covers for employment discrimination claims, sex discrimination, age discrimination, those types of things. You can think about professional liability insurance, which is also called errors and emissions insurance. And that relates to content that you might produce. So if someone sues you over content, saying you've defamed them or you've damaged a corporate brand or something to that effect, you can even think of directors and officers insurance, which basically protects the owners and the managers of a business for decisions that they make relative to how to manage the business. So the whole package of coverages that relates to most businesses would also relate to an esports organization. And a couple that come to my mind are if someone trips and falls at your event and gets hurt. Or if perhaps there's an active shooter, isn't there some kind of insurance for that? So the first thing that you mentioned, someone comes to the event and trips and falls, that's a general liability claim. Yep, that's a type of insurance that should exist for all events because that's the most common type of claim is someone actually tripping and falling, going to their seats. In terms of the live shooter type incident, that would be a specialized coverage purchased for a specific event. So certainly there's those issues that we have to think about in the real world. Any time you gather a large group of people together, there's a certain amount of risk of somebody wanting to use that event to bring attention to whatever their issue is by committing an act of violence. So certainly those are issues that we deal with, yes. So essentially when you're talking about insurance, you're talking about the risks that are associated with esports or with whatever business a person has, is that right? Yeah, so you can think of insurance as a way to manage risk. So one way to mitigate risk is just not to do something. So there's a risk of something going badly in an event. You could just not host the event and then the risk goes away. Or you can have the event and purchase insurance that helps offset the financial losses if something bad happens. So it's basically a risk mitigation or a risk management tool. Sure, and also it would be considered a risk financing tool as well for us. Yes. So it's part of the risk management plan. Risk assessment, risk control, and risk finance. Risk finance piece is where the person determines whether they should be self-insured or whether they should have an insurance company, for example, take over that risk. Is that right? Yeah, you're essentially outsourcing the risk to an insurance company. So if you go uninsured or the term we use in the industry is self-insured if you don't buy insurance from the third party, if something bad happens, you take on that full financial exposure. If you buy insurance, essentially, that insurance company is financing that risk, is covering that risk for you. So you're in a certain sense outsourcing the financial risk to the insurance company. And might you have a self-insured retention which would be called a deductible or be a self-insured detect? Yep, so most policies, not all policies, but most policies have some form of deductible or it's also called a self-insured retention. It's usually a small percentage of the limit of the insurance. So if you have, let's say a million dollars in coverage, you might have a $5,000 deductible which means that the first $5,000 of a loss, the insured pays themselves and then above $5,000 the insurance company pays up to the policy limit of a million. And there's two purposes for the deductible. One is just to avoid the cost of small claims, because there's obviously a lot of paperwork that goes along with filing claims. So it just avoids those for really small claims. And the other thing is it reduces the cost of insurance. So if you need to reduce your cost, one option is to increase your deductible because then there's fewer claims that the insurance company actually has to step in and pay. So those are kinds of the two functions of a deductible. And might you suggest to a company that they get some kind of umbrella insurance or something above those policy limits? Yeah, so there's coverage called, it can be either called umbrella liability or excess liability. And essentially it sits on top of your underlying liability policy. So if you think about as an eSports organization, say you might have general liability coverage, you might have workers compensation, you might have auto liability. So all those policies will have a certain limit on it. Then you can purchase umbrella or excess liability that sits on top of all those policies and says if you use up any one of those underlying policies, then this extra layer of coverage kicks in. So it's a way to get a little higher coverage across all your policies at a lower cost. Yeah, so definitely as you reach a certain size in business that's then you wanna increase your limits and a cost effective way to do it is with excess liability. You mentioned a risk management technique of avoidance. And during the pandemic, we're just sort of naturally avoiding risks. For eSports, the live events aren't happening. So should a company consider insurance even when those events aren't happening during the pandemic? Absolutely. If you think about any type of business or maybe think about a sports team. Okay, so if you're the Dallas Cowboys, right? You don't carry insurance just when you have games. You have insurance year round because accidents can happen outside of live events. You think about for any business, even small things. Someone comes to your place to business for a meeting and trips and falls on the stairs. That's a general liability claim. So there's always some underlying level of risk that exists all the time for business. Obviously the risk is higher during events. But there's also some risks that are unique to virtual events that you should consider. For one, in the world of cyber liability, one of the things that's happening now is ransomware or denial of service attacks where someone actually attacks your network and shuts it down and essentially blackmails you. So you can imagine right before an important virtual event if someone hacks your network and is saying you can't have this event unless you pay us 100,000 bitcoins. So there is insurance coverage when those types of things happen. So risks still exist in the virtual world. Some of it's the same. Some of it is actually unique to the virtual world. So if you have a live event scheduled and you have a star team or a player or a very popular person coming, can you purchase insurance against that person not showing up? Absolutely. There's a coverage called non-appearance coverage, which is exactly that. It covers if the person doesn't show up at the event. So if your headliner is not there for the event, obviously ticket buyers may want their money back for their tickets or the whole event may have to be canceled. So yeah, you can purchase insurance and it would cover for things like the person has an accident, the person gets sick. Depending on if they're a celebrity that's known to be temperamental, you can even get coverage where just that person decides not to show up that day. So you can get non-appearance coverage. You can also get more generic event cancellation coverage. And for example, whether could be something that you wanna consider even though your event might be indoors and the event itself might not be affected by weather, people still have to get there. And so say you're in a Northern climate in the wintertime, you might be worried about a blizzard preventing people from getting there. Or Florida and hurricane season, hurricane prevents people from being able to get to the event. So yeah, the bigger the event, the more money you're committing upfront to make this event happen, the more important event cancellation insurance becomes. So if I'm a player or a team member or a team manager, would there be insurance that would be applicable to me? Sure, so for the team manager or a coach, they probably want professional liability insurance which actually covers their work, their advice that they give, the advice that they give to the team. So say a player claims they got injured because you told them to practice it improperly or you messed up their skills and their abilities deteriorated because of poor coaching, that would be a professional liability claim. More so on the individual player, some of the things you're worried about is loss of income if you lose your ability to work. So let's suppose you fall and break your arm and are unable to play. You may want disability income coverage so that it helps replace a portion of your income while you're unable to work. You may consider life insurance that the more earnings you're making as an individual, likely the more dependent people are on you for that income. And so as you start making more money, you may want to think about life insurance that if something happens to you, the people left behind are taken care of. So there's definitely at each level within an organization there's insurance issues to think about. You know, I realized that before the pandemic, there are a lot of insurance carriers didn't really anticipate a global pandemic and the events were canceled and there were business losses associated with the pandemic. Have you noticed whether policies are now including pandemic in their exclusions or including it in their coverage? So before COVID, for large events, you could purchase pandemic or communicable disease coverage. Honestly, not many people did and you saw big organizations that chose not to purchase the coverage for their event. And obviously that was turned out to be a poor decision. Right now, and let me back up a couple of steps. How insurance companies work is everything's based on data and based on data of past claims, they can project the likelihood of future claims to determine how much they need to charge for insurance in order to cover their claims. So in the world of COVID, we really don't have that much data on it yet. Even though it feels like it's been with us forever, we don't really have data that says if you have an event with 1,000 people there, what's the probability that a certain number of people are gonna get infected? And of those people, how many are gonna get seriously ill and how many maybe even die? And so without data, it's really hard for insurance companies to offer products. So right now, most event cancellation policies are gonna explicitly exclude COVID as a cause of loss. I think that will change in the future because insurance companies are for-profit businesses. The way they make money is by selling insurance. So they want to be able to sell this type of coverage. They just need to be able to get enough data to make sense of how to sell it. So, but for most events right now, if you tried to put an event right now, you wouldn't get coverage for COVID, it would be excluded. Sure, and I think Wimbledon was one of the famous events that actually had the coverage. Did you hear about that? Yeah, there was a few key events that chose it and there were a lot of events that didn't. And there's one, which I don't wanna shame them, there was one major event that they actually had a pitch to buy the insurance even after news of COVID was first surfacing and they said no. And so, yeah, it was just, it was hard for people to wrap their minds around ahead of time that something could effectively shut down the whole world the way it did, so. Sure, well, now we know, so. Yeah, now we know, we've all learned a lot of lessons. Yeah, so when someone sells out money for their premium every month or every year, what are they buying when they pay their premium? Yeah, so I'll answer that in two ways. The first is a little more theoretical, but they're essentially buying the right to do business because there's so many people that work with you who won't work with you if you don't have insurance. For example, venues if you're hosting events are not gonna let you come in their venue if you don't have insurance. So in sort of a theoretical big picture way, you're paying for the right to do business. You're paying for the right to be safe enough to work with that others can work with you. In the more practical sense, claims don't happen every year. And so, and especially catastrophic claims meaning very large bad things don't happen all the time, but when they do, they cost very large amounts of money. And so you're essentially paying into a fund to cover future claims you may have. And so it averages out over time. So, and I said this to you earlier, Catherine, that sometimes people will say, oh, we didn't have any claims last year, so we didn't use our insurance, can we have a refund? And it's like, that's not how it works. You're looking at averaging out over long periods of time, paying enough into the insurance company to pay a big claim if and when you have it. And so that's sort of my two answers I gave to that question. Sure. And are there any downsides for not buying insurance? Sure, so if you don't, as a business, if you don't have insurance, you can go out of business if you have a major loss. So, let's suppose you're hosting an event and there's a fire at the event and a lot of people are injured. If you don't have insurance, your business is obviously gonna be sued and most likely have to go out of business because it won't have enough money to pay the settlements to those people, that type of thing. As an individual, if you don't have insurance, like say you're a very successful pro and have a very substantial income and you fall down the steps at home and are seriously hurt you can't work for three months. If you don't have disability income insurance, your income for those three months is gone. So it can be financial ruin for an individual. It can be financial ruin for a business. Sure. And one thing that a lot of people don't think about is the duty to defend because there's a duty to indemnify which you've been talking about and then the duty to defend and that's where I come in because insurance companies hire me to represent their insured when they've been sued. And what has happened, it's fantastic for my clients who have good, have sufficient coverage because they can relax during the lawsuit. They don't have to worry about the possibility of having to pay money out of their pocket. They're not paying my fees. However, I have had the people who could have had insurance but have not and they end up having to pay attorney's fees out of their pockets and they can't afford it. So do you discuss this issue with your clients? Absolutely, absolutely. I talk clients all the time. You don't have to do anything wrong to have someone make a claim against you. And an example that comes up all the time is there's an insurance coverage actually called abused and molestation coverage which always makes people skin crawl. And if you work with children like in the eSports world if you're working with high school players or even college players who are underage, you can be some child can claim that they were abused or molested by someone in the organization. And so I'll bring this coverage up to clients and they'll say, oh my gosh, no one in our organization would ever do that. And I'll say, well, it doesn't even have to happen. All there has to be is an accusation and you have to pay to defend yourself. And so yeah, it's really important to know that insurance coverage pays defense costs. And so if there's a claim made against you, whether it's a valid claim or not, the insurance company will pay to defend you against that claim. And as you know, legal costs can be huge in defending a claim. It can easily be tens of thousands of dollars or a major claim can get into the hundreds of thousands of dollars. So certainly defense costs are a big part of insurance. Sure, and I have handled sex abuse cases before and it seems that those cases that I've handled, there wasn't insurance coverage, at least my clients didn't have it. And it was pretty horrible for them. And because anyone can sue for anything, you might find yourself paying for attorney's fees in a case that's totally groundless. Yeah, I tell my clients that all the time, you don't have to do anything wrong to have a claim. And if you have to defend against a claim, we sometimes all complain about these giant insurance companies, these bureaucracies that can be hard to deal with. But if you have a claim, it's great to have this giant bureaucracy on your side because they know the right attorneys to hire. They know what the issues are. So you've got this really experienced, knowledgeable entity defending you in a claim. And they're not doing it out of the goodness of their hearts, they're protecting themselves because if there ends up being a big settlement on whatever this case is, that comes out of the insurance company too. So yeah, it's really to your advantage to have an insurance company on your side if you're facing a claim. Sure, and one of my favorite parts of my job is that I'm really working with very sophisticated claims adjusters who really understand the issues and are very good at evaluating the cases. And then it allows me to provide good customer service to my clients and because they're not making decisions based on finances, they're making decisions kind of based on reputation and resolving the matter. And whether they wanna spend time in litigation, so. Yeah, that's a good point you bring up is that if any type of organization could have claims in all different areas, you can have a slip and fall claim and the insurance company has an expert on those types of claims or you could have a defamation claim in something that one of your team members said on a live stream and they have an expert in that. So yeah, the expertise that they can bring to a situation it can be really, really helpful to and insured when they're facing a claim in something that they don't understand and that's clearly outside of their core competency. So that's definitely the types of assets that the insurance companies bring when necessary. So are there any other ways to finance risk other than purchasing insurance? Well, we mentioned there's self insurance and you can literally on your own save up a pool of money that is your internal insurance fund that then you use if bad things happen to you. That tends to be something that only very large corporations can do that have the wherewithal to set aside adequate funds to be self-insured, but that's an option. You can do, and this may be a little too specific, but if you can't afford to pay for your insurance up front you can do what's called a premium finance agreement. You can get a short-term loan for the amount of the insurance and then make payments on the insurance. So there's some options in terms of actually financing insurance premiums, so that's an option as well. Sure, and another thing that huge corporations sometimes do is form a captive insurance company. Yeah, and Hawaii actually does try to attract the captives because we have favorable laws and try to compete with other countries and states to form captives in Hawaii. Yeah, that tends to be a big company thing, or big companies can do captives and sometimes industry groups will do captives, but you have to be a pretty big player to pull that off though. Sure, sure. So what happens if one of your clients gets sued or they're served with a lawsuit? So the first thing they do is call us and we file a claim for them with the insurance company. And like I said, that's one of the times when you'll be really happy when your insurance company calls because they will have experts talking to you right away because they wanna gather all the information that's needed to defend against the claim. So they will have the right people talking to you, directing you to preserve the correct evidence, directing you what you can say or what you shouldn't say publicly, all these things to really help you defend yourself against the claim. So depending on if it's a minor auto accident, those get processed really quickly and life goes on. If it's a big potential multi-million dollar lawsuit, they will have big people working with you for a long period of time to defend against that claim. Sure, and that's where I come in a lot of times. So how did you get interested in eSports? So actually I can't claim it to myself. It wasn't my own brilliant idea. There's Robert Morris University in Chicago was a real leader in eSports and they have a program or they had a program they've now merged into a larger University Roosevelt University where they had business students do a project for businesses. So I had a group of Robert Morris students do a project for me evaluating what markets we should enter. And they actually, this was actually two years ago in October and they recommended eSports and our agency has traditionally been focused on entertainment and sports. And those students were really insightful. It's the perfect combination of the things we do. And so it fits really well with the way we understand events and things fits perfectly with eSports. The way we understand ensuring intellectual property fits directly with eSports. So it's been a really nice fit for us. And I've had tons of fun learning about the industry. So how do people contact you? We do have to wrap this up. Okay, so because my name Christopher Johnson is so common it's usually easier for people to find the business than to find me. And so our website, my company's called Johnston East Brokerage. So the website is just J-O-H-N-S-O-N-E-S-E dot com. And we're also on Twitter at Johnston East INS and the INS is for insurance. So Johnston East INS on Twitter and johnsoneast.com on the web. Fantastic. Well, thank you, Chris. This has been great. I've learned a lot. Thank you for joining us today. Next week, my guest will be the founder of a South Korean company with a startup luxury eSports clothing line which would make perfect holiday gifts. My guest goes by the pseudonym Whale Shark and only appears by Avatar. So you won't wanna miss it. See you then.