Newsletter Sign-up

Yankees owner George Steinbrenner isn't one to be pushed around, not by the competition, not by stellar ball players with outsized egos, not by the steroid scandals, not even by the commissioner of Major League Baseball and certainly not by the tightening marketplace for specialty disability insurance.

Based on his experience over the past five years, Steinbrenner and the Yankees believe in the use of disability insurance more than ever, despite the fact that coverage is getting harder to find at an affordable price, according to Yankees spokesman Howard Rubenstein.

The Yankees, for example, used a provision in their disability policy to file a claim in 2004 on the $70 million still owed to first baseman Jason Giambi. The claim was filed after the former Most Valuable Player admitted to using steroids before he signed his seven-year, $120 million contract with New York before the 2001 season.

Giambi missed the majority of the 2004 season with a variety of ailments, culminating with the treatment for a tumor. Yankees General Manager Brian Cashman said any money recovered from the insurance claim would have been used to sign another player to replace or back up Giambi.

As it turns out, the Yankees eventually withdrew their claim when the controversial first baseman reported for spring training in 2005 with a renewed commitment to the team. Giambi has remained relatively healthy over the past two seasons.

In light of the fact that player salaries are guaranteed, it's no surprise that the Baseball Players' Association has no formal policy on the use of disability insurance. "It's a nonissue for our members," said MLBPA spokesman Greg Boris. "But from strictly a player's standpoint, management would be foolish to be without this type of insurance."

On the West Coast, the Los Angeles Dodgers had relied on disability insurance even before signing pitcher Kevin Brown to baseball's first contract valued at more than $100 million in 1999. The Dodgers did so even though the policy that safeguarded the right-hander's seven-year contract included numerous exemptions and restrictions over the final three years of the agreement.

And still, the team continues to depend on disability insurance, said Camille Johnson, the Dodgers' director of communications. The coverage is especially attractive to teams with veteran players, such as the Dodgers, Johnson also said.

The business side of America's pastime has changed in many ways since the Boston Red Sox sold the rights to Babe Ruth in 1920 for $125,000 to underwrite cost of the Broadway musical, "No, No, Nanette." Specialty disability insurance has become a staple of the business plan for team owners who make use of risk management to protect the financial integrity of their investment.

Lately, the disability insurance marketplace, particularly for top stars, has tightened, brokers say. Stratospheric salaries, due in part to expensive television contracts and bloated corporate endorsements, have contributed to the trend. Shrinking capacity for reinsurance in this specialty marketplace has also played a part.

To cope, Major League Baseball teams have in the past tried to reduce the price of coverage by increasing the qualifying deductible from 90 to 182 days--the length of a full season. In recent years, however, this provision has disappeared.

A HIT IN SMALL MARKETS

Disability insurance coverage is popular not only with teams in the nation's biggest markets, but in smaller markets too.

The Atlanta Braves, who have won 14 consecutive championships in the National League East, swear by it for the team's most valuable players, according to the Braves Executive Vice President and General Manager John Schuerholtz. He pointed out that the cost of disability premiums jump in direct relation to the length of the contract.

"Whether it's a new contract, or an extension given to a player on your own roster, insurance speaks directly to the length of the contract," Schuerholtz emphasized. "We look for policies that will fit into our annual budget, especially on contracts of two, three or more years. We consider the cost of premium just another element in the expense of running a competitive major league team."

He said sharing the financial responsibility with a third party has been the team's basic philosophy since salaries began their inflationary spiral 15 years ago. He noted that the team continues to purchase disability insurance despite the nearly impossible task of finding affordable policies.

"Only once in my quarter of a century with the Braves can I remember a player signing a significant contract without an insurance policy in place," he said.

Schuerholtz added, "We swallowed very hard when the insurance company refused to cover a pre-existing condition for one of the most popular players on the team."

Pittsburgh Pirates' General Manager Dave Littlefield described disability insurance as an integral part of commerce in today's competitive environment. Small-market teams like the Pirates depend on disability insurance to guarantee that a single injury will not cripple the team's ability between the white lines, and to ensure the financial integrity of the franchise.

"There is no way we could afford to sign a player for longer than one year without knowing his salary would be replaced if we lost his services for any length of time," he said.

Littlefield went on to explain how specialty insurance gives his ownership group the confidence to invest in other aspects of the game, including responsibility for the operational costs of PNC Park. The new ballpark is located on the shores of the Allegheny River, just across the Roberto Clemente Bridge from downtown Pittsburgh.

Opened in 2001, it hosted Major League Baseball's 2006 All-Star Game in July.

Disability insurance also gives management leverage in signing younger players. Such is the case with the Cleveland Indians, for whom the coverage plays a major role in the team's desire to sign many of its younger players to long-term contracts, buying out the first few years of free agency.

"We utilize disability insurance to safeguard the overall baseball operation," said Chris Antonetti, assistant general manager of the Cleveland Indians. "Insurance, by definition, is a great way to manage risk. The Indians have used insurance for more than 10 years, and received some significant payouts during that period. We have used those funds to obtain replacement players, thereby avoiding financial hardships for the team."

Antonetti also said the Indians will get a number of quotes from insurance brokers before finalizing any long-term player contracts. The team considers disability coverage on short-term contracts for higher-priced players, especially those with a history of spending time on the disabled list.

"We are extremely selective on which players we approach with the possibility of long-term contracts," said Antonetti. "The availability of insurance plays a major factor in that decision. The qualification process for disability insurance provides the team with insights into a player's history of injury. That's helpful regardless of the length of the contract."

The Indians don't consider self-insurance, as it does not fit "our long-term equation," he said. The Seattle Mariners, by comparison, choose self-insurance to protect their high-priced talent. Doing so is almost unheard of in Major League Baseball.

DAN AZNOFF, a former insurance editor, lives in Bellevue, Wash.

October 15, 2006

Copyright 2006© LRP Publications