By Dan Aznoff

Insurance policies to cover the multi-year, multi-million dollar salaries of injured professional baseball players might soon be as hard to pick up as a split-fingered fastball.

The hardening insurance market coupled with skyrocketing salaries of premier players has created a double play combination that may threaten the financial future of more than two-thirds of the 30 major league teams, baseball officials warn.

A total disability claim can be costly for a baseball insurer. For example, when a degenerative left hip injury forced Albert Belle into retirement before the start of the 2001 season, the Baltimore Orioles filed a $27 million claim to cover the final two years of the guaranteed $65 million contract the former all-star had signed three years earlier.

“Getting insurance has never been more difficult than it is right now,” says Bill Stecka, an Orioles representative. “Players do not care where the money comes from as long as they get paid. But if the team is ultimately responsible for paying millions of dollars to a player who is unable to help your team this year, it makes it virtually impossible to pay the players on the current roster.”

ESPN baseball commentator Peter Gammons reported earlier this year that the first and last years of Kevin Browns seven-year, $105 million salary with the Los Angeles Dodgers were not protected by insurance. Gammons’ report inspired a denial and a laugh from John Scotti, owner of the Team Scotti insurance brokerage in Pittsburgh.

Scotti, who says he has written insurance for 29 of the 30 major league teams, says that besides increasing rates, insurance companies have put a limit of five years on policies covering most professional athletes. In Kevin Browns case, Scotti says the insurance company simply issued a policy for 60 months, with a standard renewal clause contingent on the players health history.

Kevin Brown just ended the third year of his contract. He has spent time on the disabled list three times this season because of injuries to his pitching arm. His season ended on Sept. 28 when he underwent surgery to repair a torn muscle in his pitching elbow.

“The insurance is available; it just costs a lot more these days,” says Scotti. “The result is that many of these new, smaller companies that got into insuring professional athletes because of the glamour of the industry might not be around when spring training begins again in February.”

He adds that “baseball teams are owned by successful business owners who do not want to do business with newcomers. We are talking about powerful individuals.” He cites the likes of Ted Turner (of the Atlanta Braves), Tom Hicks (the Texas Rangers) and Rupert Murdock (head of Fox, which owns the Dodgers). “There is no room in this league for rookies,” he says.

Scotti says the premium to guarantee the largest contract thus far in baseball history–the $252 million, 10-year contract that Alex Rodriguez signed with the Texas Rangers–would be doubled in todays market compared to the rate the Rangers received last December.

He should know. Scotti says he was forced to piece together a creative insurance package–including help from billionaire Warren Buffet–to protect Hicks quarter-billion dollar investment.

In addition, before the Pittsburgh Pirates made catcher Jason Kendall the highest paid player in franchise history with a six-year, $60 million contract extension in mid-November, Scotti was called into the closed-door negotiations to guarantee the transaction.

Negotiations were complicated by the fact that Kendall had once suffered a potential career-ending injury (a badly dislocated right ankle in 1999) as well as by the position he played (catcher), which exposes a player to a multitude of possible injuries from foul balls, errant backswings and collisions at home plate.

Sure enough, at the start of this season, Kendall injured a ligament in his right thumb in a game on April 9, which did not allow the all-star catcher to grip the bat the same way he did before he was hurt. He finished the season batting 42 points below his career average and is scheduled to have arthroscopic surgery over the winter. (Pirate management is reportedly considering moving Kendall to another position next year–possibly second base.)

The vast majority of teams declined to comment on the insurance issue, citing the privacy of the relationship between the owners and the players. Teams owned by major corporations (for example, the Anaheim Angels are owned by the Disney Corp.) responded flatly that “disclosure of such information is against company policy.”

“The size of the contracts has been a concern, but it has not been a barrier,” says Thomas R. Peterson of Peterson International Underwriters, a Valencia, Calif.-based correspondent for Lloyds of London. “The jumbo capacity needed for sports has dwindled as markets have hardened worldwide and is not available at all in the London market.”

The majority of companies still willing to issue policies on professional athletes are doing their best to stay away from long-term contracts, according to Peterson. He says most companies have attempted to cap their own risk at 36 months.

Peterson says Woburn, Mass.-based underwriting agency ASU International Inc. has become the largest writer of disability in the baseball market, surpassing even Lloyds in recent years.

Scotti agrees, adding that the industry is now dominated by three managing general underwriters: ASU, which underwrites disability programs on behalf of CIGNA; PPF, a division of North American Underwriters, which underwrites for The Hartford; as well as William J. Sutton and Company in Toronto.

Teams have attempted to reduce the cost of insurance by increasing the qualifying deductible from 90 to 182 days–the length of a full season. John Olguin, the director of public relations for the Dodgers, says risk can also be based on the position of a player.

“Just by the nature of what they do, pitchers are a much bigger risk,” says Olguin. “Pitching is not natural. The wear and tear will eventually take its toll on the human body. So if an insurance company is being asked to insure a pitcher, there may be some stringent clauses and exceptions built into the policy.”

On the other hand, Olguin explains there are always plenty of outfielders in the minor league system eager to step up if a major league player is sidelined by injury.

Dan Aznoff is the former editor of Insurance West. He is now a freelance writer living in Bellevue, Wash. who divides his time between editing Web sites and establishing community newspapers.


Reproduced from National Underwriter Life & Health/Financial Services Edition, October 29, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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