Loss-of-Value Insurance for College Athletes: Trouble Ahead
College athletics in the United States is a multibillion-dollar industry. In some states, a university football coach—technically a state employee—earns the highest salary in state government by many multiples. Yet, elite college sports programs have long basked in the aura of “amateur athletics,” these days a description true only in the sense that the athletes whose labors sell out college stadiums and arenas have never received a dime of real monetary compensation for their services.
If the National Collegiate Athletic Association (NCAA) found players received remuneration of any form it has stripped those players of their amateur status. The college sports community shamed them for having the audacity to think they ought to get a piece of the pie to which they contribute nearly all of the ingredients.
In recent years, the NCAA has tried to stave off an inevitable reckoning over student-athlete pay by approving marginal workarounds that provide—if not necessarily compensation—a very modest degree of financial security for superstar athletes. One of the methods the NCAA has blessed is “permanent total disability” (PTD) insurance, or coverage against the financial losses associated with career-ending injuries that prevent an athlete from ever playing professionally. The NCAA has approved PTD coverage through its NCAA Exceptional Student-Athlete Disability Insurance Program, as do other private insurance markets like Lloyd’s of London.
Unfortunately, coverage disputes have dogged private PTD policies. Carriers have argued players misrepresented their health or pre-existing conditions preclude coverage or that the player isn’t as sick or injured as they contend they are. But those disputes do not hold a candle to the volume and intensity of legal battles ignited by a type of add-on (or rider) to PTD coverage sold by private market insurers known as “loss-of-value” (LOV) insurance or drop in draft or slotted protection.
In a nutshell, LOV is coverage against an athlete suffering a less-than-career-ending injury before the draft, or a sickness or injury in the year before a professional is a free agent, and thereby losing the value of future expected earnings.
An LOV contract for a college athlete might, for instance, pay its beneficiary—the player—a fixed sum for each draft spot the player drops because of a sickness or injury that impairs playing ability and, thus, the amount of signing money a pro team might offer.
A similar contract for an athlete who is already a professional might offer coverage against an injury or sickness within a fixed time period before the athlete becomes eligible for the anticipated pay day that accompanies free agency. In other words, LOV offers financial loss coverage for an athlete who can still play after an injury, but whom the hiring market nevertheless views as less valuable than before the injury or sickness.
For those experienced in litigating these high stake matters it’s difficult to imagine a form of coverage more ripe for insurance litigation.
Here is how the NCAA, in couched language, describes its position on LOV insurance:
“The NCAA does not offer LOV insurance at this time because the coverage has not been shown to consistently benefit student-athletes who file a claim. Because of the complexity of LOV policy wording and the subjective nature of underwriting and accurately projecting draft positions, LOV claims are often times litigated and the market is consistently changing.”
Alabama.com, in a recent article discussing, among other things, the University of Alabama’s policy of not purchasing LOV coverage for its athletes, puts the situation a little more bluntly: “There are almost as many players suing insurance companies over [LOV] policies as there are guys who have actually gotten money from them.”
Little wonder, LOV policies come with a host of built-in complexities that make litigation practically inevitable after filing a claim. First, there is the entirely subjective and multifaceted nature of what an LOV policy covers against: an injury or sickness that leads to diminution in a player’s market value. After all, what determines the causal connection between an injury or sickness and the degree of market value?
Sure, a clear-cut case might involve a player who sustains a full ACL tear a week before draft day. More often, however, the link between injury and financial outcome, or even defining the nature and cause of the injury for purposes of a coverage determination, may well prove much murkier. What is to say, for example, whether an injury or sickness that could have a three-month recovery time if the player really works at rehab, and not a player’s propensity for showing poor work ethic at practices, is responsible for that player slipping from low second-round pick slipping to mid-third-round pick? This kind of line drawing (just one of many that can figure into LOV coverage determinations) practically invites dispute.
Every player is motivated to get better so their stock and value increases so they can get back to what brought them fame and stardom. Carriers, on the other hand, can look to other reasons for poor draft selection like drugs/alcohol, girlfriend/boyfriend issues, coaching differences, performance enhancing drugs, or too many really good draftees at a certain position.
Universities as a recruiting or retaining tool often pay or assist with local bank approved loans for PTD and LOV coverage out of funds allocated to assist athletes in financial need, which the NCAA has approved. The often-substantial premium payments can run into the tens, and even hundreds of thousands of dollars, every penny of which may technically constitute taxable income to the athlete. LOV insurance also potentially leads to a perverse incentive known in the insurance industry as “moral hazard”: the tendency to engage in riskier behavior when insurance is in place. A joke, in real life, as players play and hit hard whether insurance is in place or not.
This problem exists in all insurance, and mature markets know how to price policies to account for it. LOV coverage, however, is relatively new. Plus, accounting for an athlete, say, playing just a bit harder in practice because he/she (mistakenly) perceives some of his/her future money as “guaranteed” by insurance means or the carrier making a subjective judgment about an individual’s personality and “true motivation” in every case. Even more, insurers who discover, too late, that they underwrote a far higher risk than they imagined have a strong incentive to delay and deny coverage. Even worse, most legal practitioners are unfamiliar with the carriers legal strategy to delay, deny then overwhelm the player and his counsel with a never ending expensive legal battle, their chosen lawyer can’t fund financially.
We predict trouble ahead for the LOV marketplace. The sea of litigation that has trailed these policies will likely spur some issuers to tighten coverage language and raise premiums so as to make policies prohibitively costly for all but the most elite athletes. Others may withdraw from the market altogether. By the same token, some universities may follow the NCAA’s lead and turn away from LOV policies in favor of the more tried and true protections of PTD coverage only.
We hope more colleges and universities will ask for the right help in selecting terrific policies. With negotiatied unambiguous terms and application answers that are carefully and honestly answered. Instead of running from a market that has taken advantage of sloppy applications and poor coverage provisions. Let’s make sure our colleges get the extraordinary legal help they need from the very, very few of us that do this work, nationally and internationally.
In short, the notion of locking in an athlete’s future pro income through the wizardry of insurance contracts may seem tempting. However, for now, it has proven difficult and expensive to implement without the right language and bulletproof policy applications.
LOV policies have a separate purpose, and they can be a good investment depending on the terms of coverage. Make sure you contact a superb lawyer with experience in reviewing PTD/LOV riders and successfully litigating LOV rider claims if:
- You are working for a university or professional sports team that is considering the purchase of PTD/LOV insurance for a player
- You are an athlete who wants to purchase an PTD/LOV policy for yourself
- You have an PTD/LOV policy in place and find yourself contemplating a claim due to an injury or sickness
An attorney with exceptional national and international experience dealing with PTD/LOV insurance can help you understand these policies so you can make a better decision about whether to buy one. Should you need to file or litigate a claim, the right lawyer can help you figure out how best to do so.