Lloyd’s Suit, Upcoming NFL Draft Shine Light on Sports Insurance

As the 2015 National Football League draft approaches, a lawsuit against Lloyd’s of London by former University of Southern California Trojans receiver Marqise Lee has placed a spotlight on sports disability insurance.

Insurance agents say lawsuits in this high-profile sports insurance arena are rare and that most claims are paid or settled out of court, although several other former college players are reportedly preparing similar suits.

According to sports insurance agents the focus is happening at the time of year when interest from potential clients peaks — right before NFL draft, which this year is April 30 to May 2.

Much of the interest is from sports agents representing high-profile college players who want to protect their worth, especially those athletes who stay in school another year and wait for another draft, these agents say.

Lloyd’s is being sued because it denied Lee’s $4.5-million insurance claim on the grounds he misled the carrier about his injury history.

In 2013 Lee opted out of the draft to remain playing college another year and purchased loss of value and permanent disability insurance from Lloyd’s, the lawsuit states. Lee paid Lloyd’s a $94,600 premium for the $5 million limit loss-of-value disability policy with a business loan procured for that purpose in compliance with NCAA regulations, according to the lawsuit.

The policy guaranteed Lee the difference between his rookie NFL contract and a $9.6-million baseline. Lee signed with the Jacksonville Jaguars for four years at $5.1 million, making the difference of $4.5 million filed for in his claim.

Marqise Lee of the Jacksonville Jaguars NFL football team.  Associated Press
Marqise Lee of the Jacksonville Jaguars NFL football team. Associated Press

During the policy period Lee suffered an injury in a college football game against Arizona State University. He was ultimately diagnosed with a medial collateral ligament sprain, bone contusion, posterior sprain and popliteal cyst in his left knee.

“Lee missed multiple games as a result of the injury, and his skills were negatively affected throughout the remainder of the 2013 college football season as a result of that injury,” the lawsuit states.

His prospects for the 2014 NFL draft declined sharply, according to the lawsuit. Lee had been consistently projected as a top first-round pick prior to his injury. After his injury, he ended up not being selected until the second round (39th) in the 2014 NFL draft by the Jacksonville Jaguars.

“This decline amounted to a multimillion dollar loss in the value of Lee’s rookie NFL contract,” the suit states.

Lee caught 37 passes for 422 yards and one touchdown in his rookie year.

According to the lawsuit, in denying the claim, Lloyd’s argued that Lee failed to disclose certain health information when applying for the disability policy. Lee alleges that Lloyd’s denial was a breach of the policy and was made in bad faith.

“The defendants’ acts were inconsistent with the reasonable expectations of their insured, contrary to established claims practices and legal requirements, and constitute bad faith,” the suit states.

A Lloyd’s spokesman declined to comment for this story.

Lee is represented by attorney Fiona Chaney with the Los Angeles law firm of Dickstein Shapiro LLC, who declined to comment on pending litigation.

Lori Shaw, an executive director with Aon’s entertainment group, wouldn’t comment directly on the Lee suit. But she said these disability policies require a great deal of groundwork from the beginning.

“What I think (the suit) does is that it shines a spotlight on how particular you have to be with the policy wording, and making sure that the understanding and expectations of the person buying the policy and the understanding and expectations of the carrier writing the contract are aligned,” Shaw said.

Asked if she’s been involved in a suit like this, she stated, “Knock on wood, I have not.”

Developing the right policy language involves not only good communications among all parties, but also good guesswork on how much a player may be worth in the future.

“The tricky thing is you’re dealing with these high-level college athletes and their future worth has yet to be determined,” she said.

Michael Owen, senior vice president of Lockton Companies LLP, and head of that broker’s sports division in London, agreed that lawsuits over sports insurance disputes are rare.

“The cases that we’ve had are very clear cut,” he said. “And we’ve settled them without any litigious fight.”

Owen also declined to give his assessment of Lee’s lawsuit but said he has been involved in large payouts including for one player who suffered a broken neck and another who had a devastating knee injury. Those large claims were paid quickly, he said.

“We’ve paid out an $8 million claim in the NFL, and we’ve paid out a £6 million claim in the Premiere League (soccer),” Owen said. “We’ve paid out some very sizable claims.”

Citing client confidentiality, he wouldn’t give names or details on the payouts.

Though rare, the Lee suit may not be the only one making headlines. Former Georgia Bulldog Todd Gurley and Ifo Ekpre-Olomu, an Oregon Duck cornerback, have reportedly been preparing to file claims after suffering season-ending injuries last year.

Aon’s Shaw said that while the business is good year-round, there is more activity leading up to next month’s draft as high-profile players decide whether to enter the draft or sit it out and, if they decide to continue to play college ball, whether to buy an insurance policy. The elite players look to protect their futures.

“This all weighs in to their decision-making process,” she said, adding that Aon staffs around the business needs this time of year. “We know every year at this time the sensitivity is to the draft and sports disability.”

Lockton’s Owen said there are plenty of insurance players in the high-profile sports disability market.

“The number of people who are writing sports insurance has increased,” he said.

This increased capacity from competitors has driven down rates and commissions, while policies are growing in size to cover increasingly high-earning athletes, he added.

NFL players on average earn $1.9 million per year, according to Forbes.

“The limits are getting bigger and bigger because the players are earning more money,” Owen said.

The Lee case, Marqise Lee, V. Certain Underwriters at Lloyd’s, London, was filed in the U.S. District Court in the Central District Of California.