NFL Policy Test

Are You Ready for Some Lawsuits?

Loss-of-value policies for athletes will soon get their first test.
By: | September 2, 2014

Top NFL prospects have much to lose should an injury in college cause their projected spot in the league’s annual draft to take a significant tumble.

If you combine that possibility with the commercial insurance marketplace, the result is the Loss of Value policy — a one-time coverage product that could climb into the millions and is created specifically to protect elite athletes from lost wages.

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While loss-of-value coverage is not new, so far it has been profitable from an underwriting perspective because the first claim has yet to be filed.

That will soon change. Morgan Breslin and Marqise Lee, both ex-USC football stars, recently announced they would file claims against their loss-of-value policies.

Lee, a wide receiver, was projected to be selected in the top-20 or higher draft slot before suffering an MCL tear in his knee that he believes lowered his draft attractiveness. He wound up being drafted 39th (second round) by the Jacksonville Jaguars.

While loss-of-value coverage is not new, so far it has been profitable from an underwriting perspective because the first claim has yet to be filed.

Breslin, who had been projected as a late first-round talent before suffering a serious hip injury that required surgery, went undrafted but did sign a free-agent contract with the San Francisco 49ers.

According to Noel Paul, an insurance recovery lawyer at Reed Smith LLP, in Chicago, the Lee and Breslin claims will set a precedent for future claims in this specialty coverage.

Lee’s policy limit is up to $5 million, which is in excess of the NCAA’s disability policy, which is also at $5 million, according to media reports. However, Lee can’t collect on the NCAA policy because that would require “total disability,” not loss of value.

By falling from, say, a top 20 spot to 39, Lee could end up losing about $5 million based on previous contracts for players drafted at similar spots.

Loss-of-value coverage was created to close that gap should an injury prove to be the deciding factor — certainly not a given considering there may be other reasons why someone could incrementally lose their draft status.

“Depending on the wording of his policy,” Paul said, “Lee likely will have the burden of showing that he fell in the draft because of the injury he sustained during the 2013 season, and not for other reasons.”

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Other reasons could include analysis that Lee was a “less polished” receiver than others, for example.

Paul predicted that Breslin may have an easier time because he wasn’t expected to go as high in the draft as Lee.

Also, Breslin’s policy is capped at $1 million, according to news reports. That Breslin went undrafted is a major change in his status, compared to the 15-20 draft slots Lee dropped.

Tom Starner is a freelance business writer and editor. He can be reached at [email protected]

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The R&I Editorial Team can be reached at [email protected]