Tag Archives: alabama

Sports Injuries: Who Pays for What?

When an athlete gets hurt on the field, there’s often a lot of finger pointing.  The athlete might point the finger at the opposing player who hit her. The opposing player might point back. Then coaches get involved. After all the finger-pointing, though, who’s ultimately responsible for the medical care that might be needed for the injury? Is it the athletic program? Certainly, insurance has been factored into that program’s budget, but it might not be the kind of insurance that helps its athletes. And what about youth sports injuries or those sustained by professional athletes?

When it comes to sports injuries, insurance liabilities aren’t as black and white as you might think. While insurance policies are mandatory for nearly every athlete, it may surprise you who pays for what, especially for medical care after the end of an athlete’s career.

Youth Sports

With more than 30 million children participating in sports, it’s no wonder about 10% of them, aged 14 and under, end up in emergency rooms for injuries related to those sports. The most telling aspect of these injuries is that the majority of them occur during practices rather than games (nearly 62 %).

In the game of who pays for what, it’s difficult to determine when an injury occurs during practice rather than competition. One Seattle-area high school’s student athlete handbook simply states that participants may be covered by the school district’s insurance or by a plan that is its equivalent or better. There is no mention of coverage based on practice versus competition, and the stipulation that students can be covered by a better plan puts the onus on parents to pay for the insurance, even though the students are representing the high school.

Parents and guardians, of course, should be responsible in general for health insurance for their kids, but is it going too far to ask them to provide sports health insurance? Most regular health insurance plans will cover the basics of a child’s sports participation, but once a child becomes highly competitive, separate coverage for sports may be necessary.  It can also be argued that more specialized coverage is becoming necessary as youth sports are attracting bigger, more powerful players.

College Athletics

Once an athlete graduates to the college level, insurance liabilities don’t change much. While the NCAA requires all athletes be covered by insurance, it doesn’t require that all colleges pay for that insurance.

In some cases, as sports medicine specialist Dr. David Geier points out, colleges and universities have limited budgets and cannot afford to fully cover athletes. While many institutions provide basic on-field care for their student athletes, the buck stops when those athletes get injured.

Geier writes about the difference between the University of Alabama and Auburn, a large- and small-market team in the same state. While Alabama covers everything from basic medical and dental for its athletes to their rehabilitation for injuries sustained during an official team activity, Auburn only pays for expenses not covered by a family’s insurance. If an athlete’s family doesn’t have insurance, the school with then cover that athlete.

Covering college athletes’ insurance expenses doesn’t come cheap for any school; Alabama paid nearly $2 million five years ago, Auburn nearly $900,000. Yet with so many college athletes suffering catastrophic injuries, does it behoove the NCAA and its member colleges to provide more comprehensive care?

Professional Leagues

If an athlete can make it to the big leagues, insurance coverage becomes a different game, literally. Professional athletes who play individual sports such as golf or tennis must pay for their own insurance.

Team athletes, however, are covered by multiple policies. Leagues such as the NBA and the NHL have plans that blanket many of their players. For a league like the NHL, where injuries are prolific, this tactic is smart. These types of policies are based on a modest percentage of the players’ salaries. The NBA’s policy is only obligatory for a team’s top five players, essentially the starting line-up.

Insurance for professional athletes has to do as much with financial losses for a club as it does with physical pain endured for an injury. Policies typically won’t kick in until an athlete has been unavailable for at least a few months.  Athletes sidelined for an entire season (think: Peyton Manning) cost their teams and insurers millions of dollars.

However, because athletes of the highest caliber carry private insurance, they themselves are covering their medical expenses and covering potential income losses. After Manning’s neck surgery, the Denver Broncos guaranteed the first two years of his contract; after that, his salary could have been voided if he hurt his neck again.

Now that Manning is retired, he is likely paying a disability policy.  He famously stated that he expects to have debilitating medical problems as he ages, simply because of his playing days. Should the NFL or the Broncos pay for his treatment? As with any other employer-employee relationship, it can be argued that Manning is now responsible for his own medical care. With the continued research into post-career injuries, the responsibility for covering them will likely evolve.

Risky Spots for EPL Suits by Employees

A new study of employment practices litigation (EPL) data by Hiscox found four states — California, Illinois, Alabama and Mississippi — along with the District of Columbia, to be the riskiest areas of the U.S. for employee lawsuits. Businesses in these five jurisdictions face a risk that is substantially higher than the national average for being sued by their employees.

According to the study, a U.S.-based business with at least 10 employees has a 12.5% chance each year of having an employment liability charge filed against it. California has the most frequent incidences of EPL charges in the country, with a 42% higher-than-average chance of being sued by an employee. Other high-risk jurisdictions include the District of Columbia (32% above the national average), Illinois (26%), Alabama (25%), Mississippi (19%), Arizona (19%) and Georgia (18%). Lower-risk states for EPL charges include West Virginia, Massachusetts, Michigan, Kentucky and Washington.

Bert Spunberg, a colleague at Hiscox who is a senior vice president and the practice leader for executive risk, says: “Federal level information on employee charges is generally available, but state specific information is more difficult to aggregate. Understanding employee litigation risk at a state level is a crucial step for an organization to establish the processes and protections to effectively manage their risk in this changing legal environment.”

State laws can have a significant impact on risk. For example, the employee-friendly nature of California law in the area of disability discrimination may contribute to the high charge frequency in the state. Discrimination cases filed at the state level in California are brought under the Fair Employment and Housing Act (FEHA). FEHA applies to a broader swath of businesses, covering any company with five employees, vs. a 15-employee minimum for cases brought under federal law as outlined in Title VII of the Civil Rights Act.

Mark Ogden, managing partner of Littler Mendelson, the largest employment and labor law firm in the world, says: “Not only are employment lawsuits more likely in those states, but the likelihood of catastrophic verdicts is also significantly higher. Unlike their federal counterparts, where compensatory and punitive damages combined are capped at $300,000, most state employment statutes impose no damages ceilings. Consequently, employers in high-risk states must ensure that their workforces are adequately trained regarding workplace discrimination, harassment and retaliation and that policies forbidding such conduct are strictly enforced.”

For more on the study, click here.

Sinkhole Peril: Reducing Exposure And Managing Risk

The sensational news of Jeff Bush, swallowed by the earth while he slept, has been widely reported by the media.1 Such dramatic incidents receive a great deal of attention, likely because they are so rare. Sinkholes, however, are not rare. They do not usually threaten lives, but in Florida they have often threatened insurance companies' balance sheets, endangering their profitability and — in at least one case — their solvency.

First we must distinguish between how the terms “sinkhole” and “catastrophic ground collapse” are used in insurance in Florida. According to Florida statutes, “'Sinkhole' means a landform created by subsidence of soil, sediment, or rock as underlying strata are dissolved by groundwater.” A “catastrophic ground collapse,” by comparison, exists when all of the following four criteria are met:

  1. The abrupt collapse of the ground cover;
  2. A depression in the ground cover clearly visible to the naked eye;
  3. Structural damage to the covered building, including the foundation; and
  4. The insured structure being condemned and ordered to be vacated by the governmental agency authorized by law to issue such an order for that structure.2

Sinkholes are fairly common in Florida and even ubiquitous in some areas. But what happened to Jeff Bush was a catastrophic ground collapse, and that's rare, even in Florida.

Much of the subsurface geology in Florida consists of limestone or dolomite and both are susceptible to gradual erosion when exposed to acidic water, which arises from a chemical reaction between rainwater percolating through the soil and decaying vegetation. This erosion can produce underground voids that are not visible on the surface and these voids will expand, usually very slowly. This slow expansion leads to a subsiding surface, which can cause cracking and other damage to structures. Very occasionally, a large void will lead to sudden collapse of the surface above it.3 A well-known historical example of this is the Winter Park sinkhole.4 A more recent example is the sinkhole into which Jeff Bush's house collapsed.

Although the process that produces sinkholes occurs naturally over tens of thousands of years, it can be accelerated by human-induced depletion of underground aquifers. In Tampa, the problem has become so significant that one of the first desalination plants in the United States has been built to reduce the use of underground water supplies.5 The groundwater depletion that has resulted from increased water use has in part contributed to extremely frequent sinkholes in Pasco and Hernando counties.6

Initial Legislative Efforts
In 1981, Florida passed a law mandating that insurance companies cover the sinkhole peril as part of home insurance.7 By 2006, the sinkhole loss ratio in Hernando County for Citizens Property Insurance Corporation, an insurer created by the state for those who cannot acquire coverage elsewhere, had reached 242%. The average sinkhole claim for Citizens was about $139,000.8 Claims were often not for catastrophic ground collapse or even damage that affected the load-bearing capacity of the structure, but were cosmetic in nature. There came to be a widespread perception in the industry that marginal claims were being paid out, partially as a result of aggressive solicitation of insureds by public adjusters.

In response, Florida lawmakers passed legislation that still required insurers to offer sinkhole coverage, but allowed policyholders to exclude it. The territories that Citizens used for rating the sinkhole peril were the same as it used for other perils — generally counties divided into a coastal region and an inland region. This method did not adequately capture the differentiation in sinkhole risk and once policyholders were allowed to exclude sinkhole coverage, those who believed they were at lower risk chose to do so.

The losses for the remaining, higher-risk insureds had to be spread over a smaller amount of premium, pushing the loss ratio up, and causing Citizens to file for rate increases. Those rate increases encouraged more low-risk insureds to opt out of sinkhole coverage, creating a self-reinforcing cycle of adverse selection. The sinkhole loss ratio, especially in the area of the state susceptible to sinkholes, increased. By 2009, it had reached 683% in Hernando County. The number of sinkhole claims for Citizens in Hernando county alone had increased from 186 in 2006 to 520 in 2009 — nearly tripled — while premiums to cover them had decreased from about $9.2 million to about $6.0 million.

Private insurers began withdrawing from the market in Pasco and Hernando counties entirely, and the share of the market for Citizens increased rapidly. Between 2008 and 2010, the number of policies Citizens wrote in Hernando County increased by 50%.9 HomeWise Insurance Company was forced into liquidation in 2011, despite no hurricanes affecting Florida since 2005, because of sinkhole claims.10 The insurance of damage from sinkholes led to an insurance crisis in Florida.

Bill SB408
Although there had been several previous rounds of legislation to address the crisis in 2005, 2006, 2007, and 2009, the crisis only worsened.11 Another bill, SB408, was passed in 2011. An analysis performed by Insurance Services Office (ISO) on behalf of Citizens estimated that this bill would reduce losses by about 54.7% based on several changes:12

  • The majority of the expected savings came from a change in definition; instead of covering “physical damage,” sinkhole coverage would now cover “structural damage.” The report estimated the impact of this change in definition by reviewing a random sample of closed claims and estimating what the loss would have been under the new definition.
  • Previously, many policyholders did not use the proceeds they received from their sinkhole claims to repair damage, but instead used it to pay off their mortgages or for some other purpose. In a sample of claims from HomeWise, for example, only 27% of insureds used the money to make repairs.13 SB408 requires that loss payments be used to repair sinkhole damage based on the specifications of an engineer's report.
  • When the insured uses a public adjuster, claims for which a sinkhole is not confirmed have much higher losses than when the insured does not use a public adjuster. In the analysis performed by ISO, it was determined that the losses for claims of Citizens with no confirmed sinkhole activity were 140% higher when a public adjuster was involved. SB408 limits public adjuster compensation to reduce the incentive to inflate sinkhole claims.14
  • SB408 excludes sinkhole damage to appurtenant structures, such as driveways, sidewalks, decks, or patios.
  • Policyholders with a previously denied sinkhole claim were granted the right to sinkhole testing at the expense of the insurance company. Under SB408, the policyholder must pay part of the cost of this testing, which is reimbursed if the testing demonstrates that a sinkhole exists.

In addition to these provisions, companies can exclude sinkhole coverage until an inspection is performed. If there is evidence of prior sinkhole activity, they can exclude the sinkhole peril from coverage. They can also now require a sinkhole deductible equal to 10% of coverage A for HO-3 policies.15

The cumulative impact of these reforms and improvements in underwriting is unclear. Although the reaction in the industry has been positive, it has been less than two years since SB408 was implemented and it will take time to see if it results in a real decrease in costs. In 2006, SB1980, another sinkhole reform bill, was passed and was expected to produce up to 14.4% savings, according to a report from Deloitte commissioned by the Florida Office of Insurance Regulation.16 As it turned out, this was just before a rapid escalation in sinkhole costs. It is very difficult to predict the impact of legislation, and while there is a lot of favorable anecdotal evidence, it is probably too soon to say for certain whether the Florida sinkhole crisis is over.

What Insurers Can Do To Manage Their Risk
Excluding sinkhole coverage and offering it as a buyback with a 10% mandatory sinkhole deductible after an inspection is one of the most important tools that insurers currently have. However, the dramatic example of adverse selection that occurred in recent years in Pasco and Hernando counties should serve as a reminder of the importance of risk differentiation. Adverse selection occurs because policyholders or competitors have more information about an insured risk. Insurers can reduce this risk by adopting granular rating plans that align the premium charged as closely as possible with the expected loss.

Because insurers based their calculations on territories designed for wind risk — consisting of a coastal and inland region — they failed to adequately differentiate risk within these counties based on underlying geology, changes in underground aquifers, and claim patterns. Further, since sinkhole claims are relatively uncommon, albeit very severe, companies often lack credible data, which encourages them to utilize territories that are not homogenous.

SB408 has diminished the sense of crisis in the industry and creates an opportunity for insurers to get ahead of the risks they face. Companies are now able to charge a separate premium for the sinkhole peril and they should begin utilizing territories that better reflect the variation in the underlying risk from that peril. Doing so, coupled with other important risk management strategies, will decrease the likelihood that they will have the sort of unfavorable experience that has been so damaging to the industry in recent years.

Although Florida has by far the highest rate of sinkholes in the United States, they also occur in many other parts of the country, such as Alabama, Kentucky, Missouri, Pennsylvania, Tennessee, and Texas — anywhere, in fact, where acidity erodes subsurface limestone. About 20% of the United States is susceptible to sinkholes.17 Less than two months after Jeff Bush was swallowed by the earth, a sinkhole in Chicago devoured three cars.18 Insurers would be wise to review their policy language and the law in all states where they have potential sinkhole exposure and consider steps to address this exposure. The most dangerous peril for any insurer is the one they did not realize they were covering.

Notes

1 New York Times (March 2, 2013). Crews halt effort to find man lost in Florida sinkhole that swallowed his room. Associated Press. Retrieved April 18, 2013, from http://www.nytimes.com/2013/03/03/us/florida-sinkhole-growing-as-engineers-investigate.html.

2 Section 627.706(2)(a), Florida Statutes.

3 Beck, B.F. & Sinclair, W.C. (1986). Sinkholes in Florida. Florida Sinkhole Research Institute, Universityi of Central Florida. Retrieved April 18, 2013, from http://publicfiles.dep.state.fl.us/FGS/FGS_Publications/FGS Library Documents/SinkholesInFlaAnIntroBeck1986a.pdf.

4 In May 1981, the Winter Park sinkhole in Central Florida swallowed a house, five Porsches, and part of the city's swimming pool. The sinkhole eventually measured 350 feet wide, 75 feet deep and had caused $4 million dollar in damage. Orlando Sentinel (November 13, 2013). Looking back at Winter Park's famous sinkhole. Retrieved April 18, 2013, from http://articles.orlandosentinel.com/2012-11-13/news/os-fla360-looking-back-at-winter-parks-famous-sinkhole-20121113_1_sinkhole-orlando-sentinel-winter-park

5 U.S. Geological Survey (November 2003). Ground-Water Depletion Across the Nation. Fact Sheet 103-03. Retrieved April 18, 2013, from http://pubs.usgs.gov/fs/fs-103-03/.

6 U.S. Geological Survey (January 2013). Groundwater Depletion. Retrieved April 18, 2013, from http://ga.water.usgs.gov/edu/gwdepletion.html.

7 Florida Senate (December 2010). Issues Relating to Sinkhole Insurance. Interim Report 2011-104. Retrieved April 18, 2013, from http://publicfiles.dep.state.fl.us/FGS/WEB/sinkholes/FlaSenateSinkholeIssues.pdf.

8 Florida Senate, ibid., p. 18.

9 Florida Senate, ibid., p. 26.

10 Florida Dept. of Financial Services (November 18, 2011). Notice of Liquidation of HomeWise Insurance Company. Retrieved April 18, 2013, from http://www.myfloridacfo.com/agents/industry/news/hwicliq.htm.

11 Florida Senate, ibid.

12 Ericksen, P. (July 19, 2012). Citizens Property Insurance Corporation: Senate Bill 408 Sinkhole Analysis. Insurance Services Office. Retrieved April 18, 2013, from https://www.citizensfla.com/about/mDetails_boardmtgs.cfm?show=PDF&link=/bnc_meet/docs/419/07AH_Citizens_SB408__Sinkhole__Analysis.pdf.

13 Florida Senate, ibid.

14 Ericksen, ibid.

15 Section 627.706 (1)(b), Florida Statutes. Retrieved April 18, 2013, from http://www.leg.state.fl.us/Statutes/index.cfm?App_mode=Display_Statute&Search_String=&URL=0600-0699/0627/Sections/0627.706.html.

16 Florida Office of Insurance Regulation (September 7, 2006). Press release: Sinkhole factor adoption will lead to consumer savings. Retrieved April 18, 2013, from http://www.floir.com/PressReleases/viewmediarelease.aspx?id=1480.

17 U.S. Geological Survey (March 11, 2013). The Science of Sinkholes. Science Feature. Retrieved April 18, 2013, from http://www.usgs.gov/blogs/features/usgs_top_story/the-science-of-sinkholes/.

18 Jamieson, A. (April 18, 2013). Sinkhole swallows three cars on Chicago's South Side. NBC News. Retrieved April 18, 2013, from http://usnews.nbcnews.com/_news/2013/04/18/17810648-sinkhole-swallows-three-cars-on-chicagos-south-side.