Value added?

Once reserved for the most elite college athletes, loss-of-value insurance plans have gone mainstream in the past two years, leaving some to wonder where the line falls between providing security to student-athletes and issuing false hope

Story by Brian Hendrickson   |   Illustration by Arnel Reynon

The world in front of Marqise Lee was full of openings when he fielded a punt near his team’s 30-yard line on a September evening in 2013. In front of him was a mob of Arizona State University defenders and the potential for something big.

Marqise Lee was looking to his NFL future when he took out an insurance policy before his junior year at Southern California. A first-round draft projection before the 2013 season qualified him for $10 million of permanent total disability coverage and $5 million in loss-of-value benefits. Jason Decrow / AP Images

He was coming off a record-breaking season as a sophomore – his 118 receptions for 1,721 yards were enough to produce the first Biletnikoff Award winner in the University of Southern California’s esteemed history. His average touchdown reception was 40.8 yards that season as he slipped through traffic, exploded through short areas and manipulated defenders trying to hang in man coverage. Sure, scouts wondered if his 6-foot, 192-pound frame, which didn’t break many tackles, could hold up in the NFL. But his nifty, creative running skills still made him a top-10 draft prospect.

The Trojans were trailing 48-21 at the start of the fourth quarter and in need of a spark when Lee received the punt at the 32 and juked Sun Devils wide receiver Jaelen Strong with an abrupt cut to the right. He scooted away from a second diving defender before running into an immovable object, 283-pound Sun Devils defensive end Davon Coleman. With Lee’s momentum stopped cold, Coleman spun him to the ground, trapping Lee’s left ankle under his thigh, pulling his upper and lower legs in opposite directions and twisting his knee. The abrupt maneuver threatened to close many of the openings presented by Lee’s professional future.

It was a moment feared by many star athletes bound for pro careers. Lee remained on the ground, lying on his left side, motionless except for his trembling right leg. Teammates helped carry him off the field, and rather than electrify the crowd with explosive touchdown catches, Lee sat on the sideline and put a towel over his face. His professional prospects in this moment were clearly questioned. The top-10 draft picks that year signed contracts worth more than $12 million. Falling out of the first round would mean signing for half that amount.

But Lee could feel secure about one thing: One month earlier, he had taken out an insurance policy protecting him from just this type of injury – one that could have a drastic impact on his draft value.

At least, that’s what he thought.

Nearly a year after Lee’s injury, Jameis Winston made headlines, not for his Heisman Trophy-winning talent, but for his insurance policy. As the start of football practices approached, news outlets – including Yahoo! Sports, SB Nation and other sites with wide-reaching readership – reported the Florida State University quarterback had taken out an insurance policy worth up to $10 million that protected him not just from a career-ending injury, but also from one that could sideline a player for a few games and raise enough questions to lower his draft stock, the type of injury that had benched Lee in the Arizona State game.

But just as important as the policy, it seemed, was the source of the payment: Florida State was footing the bill.

Florida State paid for Jameis Winston's insurance policy, a move supported by coach Jimbo Fisher. “To me, that’s the greatest thing that’s going on in college sports today because it keeps kids in school,” Fisher said at the time. Mark Wallheiser / AP Images

“To me, that’s the greatest thing that’s going on in college sports today because it keeps kids in school,” coach Jimbo Fisher said at the Atlantic Coast Conference’s media day that year. “They all want to leave for the money. If I know the money is guaranteed, I can stay and get a college degree.”

Presented at that surface level – the typical selling point to any student-athlete who qualifies – the policies seem like a no-brainer. And the attention Winston’s policy received helped accelerate the growing interest among elite athletes. Meanwhile, athletics administrators have made the policies more accessible; it’s increasingly common for schools to pay for insurance premiums using student assistance fund money, which the NCAA distributes to Division I conferences to help student-athletes meet unexpected financial needs. And in 2015, the autonomy conferences in Division I approved new legislation that permits student-athletes to borrow against future earnings to pay for the premiums, putting the policies within reach of a broader group than ever before.

But while the benefits of permanent disability insurance are easy to understand – medical standards exist to determine whether an injury is career-ending – compliance directors have found the loss-of-value riders, which can be purchased only as additional coverage on a disability policy, are murkier. The policies are complicated, and the list of exceptions that can disqualify a player from coverage – such as pre-existing injuries – can be lengthy. Players projected as top-three picks in a draft can more easily make the case that an injury reduced their draft stock than a projected late first-round pick who falls to a less prominent position. The lower they fall, the more nuanced the drafts become, with team needs, parity in talent and nitpicky scouting critiques muddying the reasons for a player’s falling stock.

“They have so many options to be able to say no,” says Brad Barnes, assistant director of compliance and education at Texas A&M University, College Station. “Outside of a small segment of kids, I don’t think loss of value has any value.”

Yet they’re still coming, mostly from football and men’s basketball, but some from baseball, men’s ice hockey and women’s basketball as well, their interest fueled by parents, family members and friends who heard the news stories about Winston and others. Some compliance directors see a culture in which talented players think being an elite athlete means taking out a loss-of-value policy. This shift has taken a product once reserved for No. 1 overall draft selections into the mainstream. This year alone, The Ohio State University’s football team – with its national-championship-caliber stock of talent – paid for five policies with loss-of-value riders through student assistance fund distributions. Southeastern Conference schools paid for a total of 13 policies in football and men’s basketball through those funds. And Atlantic Coast Conference schools – which saw a football team reach the College Football Playoff title game and two basketball teams reach the Final Four – paid for 18 policies in football, men’s basketball and baseball.

Yet despite those increasing numbers, only two college athletes are known to have collected on a policy, leading critics to wonder: Is this purported safety net really as valuable as it’s perceived to be?

Former University of Southern California wide receiver Marqise Lee filed a lawsuit against the underwriters of his loss of value policy after his claim was denied. Lee claimed a knee injury suffered during his junior year at USC was responsible for his second-round selection in the NFL Draft. He was projected as a potential top-10 selection when he paid the $94,600 premium for his policy. Jae C. Hong / AP Images

As practices for the 2013 season began, Marqise Lee stepped onto the field as a prime example of a college athlete who could benefit from a loss-of-value policy. He could enter his name in the NFL draft for the first time at the end of that season, and before the first kickoff, ESPN analyst Mel Kiper Jr.’s Big Board already listed Lee as the top receiver.

Around that time, according to court documents, Lee was approached by Ronnie Kaymore, the CEO of New Jersey-based Kaymore Sports Risk Management and Consulting, about submitting an application for permanent disability insurance with a loss-of-value rider. (Kaymore denies the version of events depicted in Lee’s court filing, saying he was approached by Lee and Southern California with specific policy terms they proposed. Kaymore says he never had direct contact with Lee). Lee applied for both types of coverage. The process Lee went through, as outlined in court filings, is similar to what insurance agents describe as standard for loss-of-value policies: An agent first determines a college athlete’s likely standing in the draft – the techniques for which vary, but generally involve scouting services and discussions with team general managers. The agents ascertain the likely rookie contract value and propose terms for coverage that, after some negotiation, are eventually presented to an insurance underwriter.

Lee’s first-round draft projection qualified him for $10 million of permanent total disability coverage – $5 million more than disability policies offered through an NCAA program offered at the time – and $5 million in loss-of-value benefits. The cost, according to the sports insurance proposal form filed with the court: $70,000 for permanent total disability and an additional $20,000 for the loss-of-value rider. With included fees, the total premium was $94,600.

The application was nine pages long. Nineteen questions requiring 59 responses probed Lee’s medical history. They asked if he had consulted Southern California’s team physician, or any other physician, in the previous 24 months beyond a routine exam or physical, and if he had taken pain-reducing or anti-inflammatory medication in the same period. One question asked if he had experienced pain or discomfort, had an injury or had surgery on 21 specific areas of his body, such as his upper back, left and right shoulders, left and right knees, and each foot and hand. Lee’s application answered no to all but one, noting an issue with his right shoulder. It checked “no” on a question about his left knee – the one he would go on to sprain in the Arizona State game a month later. The application provided additional detail only for the question about his right shoulder.

On the eighth page, in the fourth item of fine print above Lee and Kaymore’s signatures, was a critical statement. “The insurance applied for will not take effect unless the health of the proposed insured remains as stated in the Application on the inception date of the proposed policy.”

Lee signed the proposed policy Aug. 23, initiating coverage that would protect him for the next year. But court records indicate it took another six weeks for Lee’s medical records to be submitted to the underwriters and for his premium to be paid, and 12 weeks for the policy to be issued Nov. 15. Lee injured his knee Sept. 28.

Former Oregon cornerback Ifo Ekpre-Olomu, one of two players known to have received a benefit from a loss-of-value policy, was projected as the 2014 NFL Draft's top cornerback before tearing the ACL and dislocating the patella in his left knee. Following the injury, he was selected in the seventh round. Ryan Kang / AP Images

Only two college athletes – Southern California running back Silas Redd and University of Oregon cornerback Ifo Ekpre-Olomu – are known to have received a benefit from a loss-of-value policy, but the insurance nonetheless has defenders on both sides of the issue.

Insurance brokers – called producing agents in the business – stand by the policies, contending they are as legitimate as homeowners insurance. Eric Chenowith, a former University of Kansas basketball player who is now a producing agent for Parq Advisors in Beverly Hills, California, says he works exclusively with athletics directors so they will trust what he offers. He also says he works closely with college athletes to ensure they understand the policies before they are submitted to the underwriter. “I won’t write a policy that I don’t feel will hold up if there is a claim,” he says.

3 things to know

For student-athletes…

Read the fine print. Loss-of-value policies are full of nuance, so read them carefully – some policies contain a clause requiring student-athletes to pay part of their claim back if they sign a larger contract in the future. Understand the triggers of the coverage. How much discretion will the carrier have in the event of a claim? “The thing we try to educate these kids on: You need to really read the fine print that you’re signing to make sure that you’re aware of everything,” says Craig Anderson, senior associate athletics director for compliance at the University of Miami (Florida).

Be detailed. The best rule of thumb when filling out your medical history: Include any injury that caused you to miss even a single practice or part of one game. Anything left out, as evidenced in lawsuits filed by former University of Southern California student-athletes Marqise Lee and Morgan Breslin, can increase the possibility of a denial.

Check out your broker. Unlike lawyers, insurance agents are not bound to serve their clients’ best interests. “What we really need to do is find brokers out there who are going to take their clients through the process,” says David Roberts, vice president for compliance at Southern California. “They know exactly what is required, what is necessary, when it’s necessary, and it should be their job to make sure it happens.”

For athletics departments…

Educate, educate, educate. Education is regularly cited by athletics administrators as the most important step schools must take to help their college athletes make wise insurance choices. While schools can’t advise them, they can help students understand what they’re purchasing. “There’s going to be a lot of different people that are telling them a variety of different things,” says Blake James, athletics director at Miami. “It’s important that we have accurate information that we can share with them.”

Work with the agents. The Ohio State University, like many schools, works directly with insurance agents. But Ohio State has a process in place to control that contact: Insurance agents are required to first register with the athletics department as an agent or financial advisor; the school then collects any quotes and provides them to the players. And the school provides incentive: Ohio State will pay the insurance premiums for their student-athletes through student assistance fund money – a strategy the school believes motivates agents to play by its rules.

Set a policy. It can be hard to agree to cover one student-athlete’s policy while turning down another. So set a policy that establishes when the school will help, and why. For example, from student assistance fund money, Miami will pay 50 percent of a disability or loss-of-value premium for up to four athletes per year, while Southern California has never used the fund to pay insurance premiums. Each school approaches the issue differently, but writing down the policy will help explain it.

The University of Miami (Florida) works exclusively with a single agent – Keith Lerner of Total Planning Sports Services, a 29-year veteran of writing disability and loss-of-value policies for athletes – because it believes in his credibility, according to Craig Anderson, Miami’s senior associate athletics director for compliance. One of Lerner’s former clients was Ekpre-Olomu, who collected $3 million from his loss-of-value claim.

But because only two claims are known to have been paid, many college administrators and compliance directors are skeptical about the real value such policies offer college athletes.

“With so few examples of loss-of-value benefits being paid,” says Jim Phillips, vice president for athletics and recreation at Northwestern University and chair of the NCAA Division I Council, “it’s hard to say at this point whether or not these really are a useful tool for student-athletes – especially considering the many exclusions often included in these policies.”

Those exclusions often raise concerns about the policies’ value.

On the surface, a loss-of-value policy can appear straightforward. Once a producing agent has evaluated a player’s draft potential, he or she projects the likely value of a rookie contract. If the contract that athlete signs falls far enough below that projected value due exclusively to an injury or illness, the coverage kicks in.

But the policy is not designed to allow the player to recover all losses. A threshold, typically set at 50 or 60 percent of the projected rookie contract, is set when the policy is signed and becomes the entry point for benefits. If the player’s contract falls below that threshold, the coverage kicks in; but the claim’s benefits will cover only the gap between the value of the signed contract and the threshold amount. So a projected $10 million player who signs for $3 million, with a threshold set at $5 million, would collect only $2 million in benefits.

College athletes often come to compliance directors with basic misunderstandings. They think the coverage will cover the full loss from the projected contract value, not up to the threshold. And they don’t understand the many ways their claims can be denied.

The injury, for example, might not be severe enough to be deemed solely and directly responsible for their drop in the draft. Typically, it must be a severe injury with long-term effects, such as a torn knee ligament. A long list of other complicating factors can get in the way, too: Perhaps the student-athlete lost playing time to a teammate. Maybe off-field incidents lowered teams’ interest in him. Teams’ position needs could have changed. A college athlete might have neglected to mention on his application a long-ago sprained ankle or struggles with drug and alcohol use. Even an act of war or nuclear, chemical or biochemical terrorism could lead to denial.

Critics of the policies argue circumstances must align perfectly before a claim pays out. Even Ekpre-Olomu’s claim benefited from some circumstances that worked in his favor. Analysts projected him as the top cornerback in the NFL draft but he slid to the seventh round after tearing his anterior cruciate ligament and dislocating his knee cap during practices two weeks before the national semifinal game against Florida State. His injury occurred on a noncontact play after a season in which Ekpre-Olomu was a top-three finalist for the Jim Thorpe Award and was second on the team in pass breakups and interceptions.

“To Ifo, it didn’t matter that we hadn’t paid any other claims that year,” Lerner says. “We paid him. That’s the bottom line. That’s what insurance is, in general, with any kind of insurance that you have – auto insurance, homeowners insurance. Most people’s house is never going to burn down. Yet every bank requires, if you’ve got a mortgage, that you’ve got insurance protected from a fire. It’s that simple.”

The counterpoint to Ekpre-Olomu’s winning claim are the many disappointments such policies have left in their wake. There’s the story of Texas A&M left tackle Cedric Ogbuehi, whom Kiper had projected as the draft’s No. 2 pick at the start of the 2014 season. After tearing his ACL in the Liberty Bowl, Ogbuehi fell to 21st in the draft. The difference between the second pick, Oregon quarterback Marcus Mariota, and Ogbuehi, including signing bonuses, was $25.8 million. Even so, Ogbuehi’s agent, Ryan Williams, said his value didn’t fall enough to trigger a benefit.

The claim of former Southern California linebacker Morgan Breslin also was denied. Projected to be selected in the first two rounds in 2013 before missing all but five games that season due to a sports hernia and hip injury, he went undrafted and then, after signing with the San Francisco 49ers, failed to play a single game due to his health. According to court records, insurers claimed injury information was not included in his application. He and his insurer reached a settlement in March; its terms are sealed.

They are the reminders, compliance directors say, that the policies offer no guarantees.

In a March 2015 letter, the underwriters of Lee’s policy, AmTrust at Lloyds of London, explained why his coverage had been denied.

Lee’s performance for Southern California declined after he sprained his left knee on the play against Arizona State. Months later, the former top-10 prospect was selected by Jacksonville in the second round of the NFL draft with the 39th pick. The difference between a top-10 pick – a minimum of $12 million that year – and the $5.2 million contract he signed as the 39th pick prompted Lee to file a claim to recover his loss of value.

In its motion to dismiss the case, AmTrust argued the policy had been rescinded because Lee failed to provide adequate information on his application. The previous spring, AmTrust alleged Lee had sprained his left knee in practices and had not been cleared to play for nearly a month. On his insurance application, beneath a question about whether he had “ever injured or suffered pain or discomfort, or had surgery to any of the following,” the box next to left knee was checked “no.”

Additionally, AmTrust alleged Lee never updated his application with information about the knee injury he suffered against Arizona State, which court documents indicate occurred five days before his team medical history was provided to the underwriters and several weeks before the full premium was paid and the policy issued. The medical history submitted by Southern California’s team doctors, according to AmTrust’s filing, did not include information about Lee’s most recent knee injury.

Finally, AmTrust pointed out the fine print near Lee’s signature on the application – the one that acknowledged his health remained as stated in the application when the policy took effect.

Because of Lee’s “material representations” about the spring knee sprain and the absence of information about the second injury that fall, AmTrust said in its court filing that Lee’s policy had been rescinded.

Both parties filed suits against each other on the same day. More than a year later, the case is still undecided. Lawyers for Lee and AmTrust did not respond to interview requests.

Texas A&M tackle Cedric Ogbuehi is another former college athlete who never saw a benefit. He fell from the projected No. 2 pick in the NFL Draft to 21st after tearing his ACL. Charles Rex Arbogast / AP Images

The likelihood of collecting on loss-of-value insurance isn’t on the upswing. But the number of agents selling it seems to be. Chenowith, the producing agent, estimates the number of agents he is personally aware of who are offering loss of value has tripled in the past two years. Anderson of Miami says his department is regularly contacted by new agents. And Jason Singleton, an associate director of compliance at Ohio State, says the school dealt with only two agents four years ago; this year, on the heels of winning the first College Football Playoff National Championship, the athletics department works with about 20 agents and fields calls daily.

The biggest reason for the spike: Student-athletes are interested. Winston’s insurance policy provided a high-profile example for others to follow. Lerner said almost every player projected for the first three rounds of the NFL draft is carrying disability insurance, and loss-of-value policies are increasingly common for first-round prospects. Student-athletes also have increasing options to pay for those policies: NCAA legislation passed last year allows players to borrow against future earnings if their school won’t cover the premium for them. And advice they often hear from their circle of family and friends makes disability and loss-of-value insurance seem more like a personal responsibility than an optional one.

It’s creating a competitive marketplace: Several compliance directors say they’ve heard recruiting tales of competing coaches promising to pay premiums through the student assistance fund, or reports of insurance agents making contact with players’ families outside the school’s purview. Barnes says he is aware of multiple policy proposals made to Texas A&M athletes who had just arrived on campus with dazzling recruiting rankings that attracted offers.

Many administrators worry the atmosphere is ripe for problems.

“It was a much narrower program in the beginning, and the proliferation has caused some reasons to take a closer look,” says Bob Bowlsby, commissioner of the Big 12 Conference and chair of the NCAA Division I Football Oversight Committee. “We have to put some architecture around ‘What is an elite athlete?’ Is it somebody who’s projected as a lottery pick in the NBA? Or is it somebody who’s a first- or second-round draft choice in the NFL? It can’t be just anybody who thinks they’re going to the professional leagues, because our surveys tell us that 70 percent of Division I basketball players think they’re going to play professionally.”

Schools, meanwhile, are caught in the middle: They often pay for insurance, but they can’t advise their student-athletes on whether to apply for it. In fact, after Breslin’s disability and loss-of-value policies were denied, he sued Southern California, claiming the school guided him to purchase a faulty insurance policy.

Barnes’ office at Texas A&M made headlines two years ago when Ogbuehi agreed to return for his senior season. The premium for his loss-of-value policy was widely reported to have been paid for by the school, and Barnes’ department was credited by reporters with discovering a loophole in NCAA policy that allowed the Aggies to cover the cost. It was a misunderstanding: The student assistance fund the school used has long allowed schools to fund insurance policies.

Besides, Barnes carries a healthy skepticism. What looks promising on the surface – the security that brokers sell – is enticing. But as the popularity grows and more students come to him inquiring about the coverage, he wants them to understand the reality.

It’s similar to the view from atop a high dive, Barnes says. From the platform, when you’re on top of the world, the policy can look like a vast pool of money beneath you, ready to stop your fall in the event of an injury. “But once you dive and get closer, it’s a dainty teacup,” he continues. “And if you land in the teacup, you can get money.

“But if only your finger falls outside the cup, then it turns into concrete. You have no money. And it’s crushing pain and disappointment.”

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