This is an interesting concept so if I'm understanding correctly they would be paying into an escrow as a security deposit and lets say something did go wrong would that then be distributed out to those that have been affected by the coin?
Yes, that is the logic behind it.
The logistics of that sound like a nightmare but in theory a good idea. Having a large substantial amount in a security deposit which will then be used to reimburse those could be a good idea. I think this would only be relevant if the project scammed and not because it failed though as even good projects fail to realize their potential.
Yes, if a project failed to accomplish their goals and raise the needed funds they would receive their security deposit back as long as they have refunded all their investors. If the investments don't get returned the deposit would be kept in the escrow and used to at least partially reimburse the affected parties.
Sounds like a nightmare to implement, you are right, but I still think it is not a bad idea.