October 12, 2011 8:36am PT by Eriq Gardner
IMG Worldwide Demands Insurers Pick Up Cost Of Fighting Ex-Athletes In Video Game Litigation
An avalanche of lawsuits by former collegiate athletes claiming their likenesses were exploited in video games may be beginning to stress IMG Worldwide, one of the top agencies in the world representing athletes and celebrities.
On Monday, Collegiate Licensing Company, a subsidiary of IMG, took five insurers to court with allegations of breaching contractual obligations to provide coverage for the defense of these many lawsuits.
Currently, Electronic Arts, the NCAA and the Collegiate Licensing Company (CLC) are in the midst of fighting off numerous ex-athletes who believe they should have gotten compensation for having their images and likenesses featured in collegiate sports-themed video games.
Some of the lawsuits have been consolidated into a class action pending in California, but the hits keep on coming. For example, last week, basketball hall-of-famer Bill Russell filed his own lawsuit over the use of his image in a “Tournament of Legends” feature on an NCAA basketball video game.
The lawsuits have threatened licensing deals valued at some $4 billion and have raised interesting questions about the First Amendment, and regardless of the merit, the cases are no doubt expensive to defend.
In a lawsuit filed in Atlanta federal court on Monday, CLC points to a host of insurance policies it has taken out in an effort to insulate itself from these costs.
The insurance agreements with defendants American Casualty Co., Great Divide Insurance Company, Allied World National Assurance Company, Westchester Fire Insurance Company, and Lexington Insurance Company are said to provide coverage for "Personal and Advertising Injury" liability, indemnifying acts such as libel, privacy violations, idea theft claims, and copyright and trademark infringement. Some of the insurance agreements provide coverage up to a $25 million limit.
CLC now says that the insurers are refusing to make good on their policies despite the many legal claims from former athletes, including the above-mentioned class action and Bill Russell's lawsuit. The company wants a judgment that orders the insurers to pay these costs.
As for the lawsuits that serve as the basis for the latest controversy, both the NCAA and EA are talking a tough game.
In response to Russell lawsuit, NCAA's general counsel Donald Remy told Bloomberg that the lawsuits are without merit, that former athletes can profit through post- college commercial endorsements, and that if these lawsuits are successful, it “would cause the NCAA to lock up its archive of championship contests, and they would be held hostage unless every student-athlete, coach, band member, cheerleader and fan in a photo or camera shot received compensation."
Meanwhile, EA doesn't even want to consider the chance it might lose despite a CNBC report that $1 billion in damages could be at stake. In the company's last fiscal year proxy statement to the SEC, under the Legal Proceedings column, EA will only go so far as to make this disclosure to shareholders:
"We are subject to claims and litigation arising in the ordinary course of business. We do not believe that any liability from any reasonably foreseeable disposition of such claims and litigation, individually or in the aggregate, would have a material adverse effect on our Consolidated Financial Statements."