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By DAN REYNOLDS, senior editor of Risk & Insurance®

When the Los Angeles Dodgers hired three-time All Star pitcher Jason Schmidt in late 2006 they were aware that the 33-year old right hander had a partial rotator cuff tear in his pitching shoulder.

The lawsuit, filed by a noted Los Angeles-based insurance litigator, Andrew Lundberg of Latham & Watkins, LLP, seeks to recover from ACE $9.2 million in payments the Dodgers made to Schmidt when he was on the disabled list for much of the 2007 and 2008 seasons.

The suit accuses ACE of breach of contract, breach of good faith and fair dealing, deceit and unfair business practices and in addition to the $9.2 million the Dodgers paid to Schmidt between July, 2007, and June 15, 2008, seeks compensation for attorney's fees and punitive damages.

According to Lundberg's filing, ACE charged the Dodgers a $2.5 million premium and agreed in the policy that it would fully cover disability resulting from nonrotator cuff injuries to Schmidt's right shoulder and would even cover disability resulting from rotator-cuff injuries, albeit on a limited basis.

What seems to be one of the central issues in the Dodgers versus ACE case is a "special condition limitation" affecting the length of an "elimination period," in effect a deductible that would apply to specified injuries only. The elimination period is 90 regular season days, the first 45 of which must be consecutive.

Schmidt began the 2007 season as a starting pitcher on the Dodger's 25-man roster and started three games before being placed on the disabled list and missed the next 45 games due to shoulder injury. After therapy, Schmidt returned to the lineup in June but lasted 13 days before being placed on the disabled list again. He had surgery on his shoulder on June 20, 2007.

According to Lundberg's complaint, ACE has paid the Dodgers for Schmidt's disability from June 15, 2008 forward but has refused, based on the basis of the special condition limitation, to make payment for any of the 143 days of disability from between July 27, 2007 and June 16, 2008.

According to the Dodgers, the unpaid total of $9.2 million stems from 65 days of disability at $65,934 per day in 2007 and 78 days of disability at $63,874 per day in the 2008 season.

Here we must interject that Schmidt in his entire career, which began in 1995, has pitched a total of 22 complete games. He did appear in three All Star games and back when he was with the San Francisco Giants tied a franchise record by striking out 16 Florida Marlins on June 6, 2006. But the most games he ever won in a season was 18, and that was back in 2004.

In a letter dated Sept. 5, 2007, according to the complaint, ACE admitted that Schmidt was "totally disabled" but that the special condition limitation applied to that disability.

Lundberg asserts that the insurance company hired a "peer reviewer" orthopedist to review the records of Schmidt's condition. In his complaint, Lundberg alleges that the insurance company "failed to ask the reviewer questions designed to elicit an opinion on the facts material to the Dodger's claim for coverage and disregarded the opinion of the reviewer when such opinion in fact ultimately supported the Dodger's claim."

The Dodgers, according to reports on MLB.com, said that Schmidt should be ready to return to action this spring, thought they expect to hold him back initially. Schmidt did participate freely in a spring training session on Feb 14.

MLB.com reports said it wasn't until doctors removed an injured tip of Schmidt's clavicle that he felt good throwing again. The team, which ponied up $15.5 million for Schmidt for a three-year contract, might yet get some of their money's worth from the 36 year-old pitcher, regardless of the outcome of the case against ACE.

ACE and Lundberg declined to comment.

March 3, 2009

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