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By: Matthew Jones
The effective shutdown of sporting events due to the spread of COVID-19 is having a financial effect on many people in all walks of life. Perhaps overlooked are college athletes who aspire to have contracts with professional teams. Increasingly, college athletes are insuring their careers against “Loss of Value” to protect the value of future contracts from decreasing below a predetermined amount due to significant injury or illness suffered during the coverage period. These policies are particularly important for athletes during the year leading up to their draft eligibility. Whether delays in the drafts will be covered by these policies is uncertain.
The policies require medical underwriting and may exclude specific pre-existing injuries or illnesses, such as osteoarthritis or degenerative conditions, drug and alcohol use, criminal acts, and mental, nervous or psychological disorders. Insurers first determine an athlete’s eligibility based on projected draft position. Depending on that position, policy limits vary between $1 million and $10 million. The underwriters then set a loss-of-value threshold: If the athlete is drafted below a specific position, and must sign for a lesser amount, the policy may be triggered. If the contract amount falls below that threshold as a direct result of injury or illness, the insurer will pay the difference between the contract’s value and the predetermined threshold.
Injury or illness does not automatically trigger benefits. Instead, the athlete must tie the injury or illness directly to a decrease in value or lower draft position. Insurers evaluate other issues as well, including off-field conduct, poor performance during the season or at pre-draft events, a rise in the draft value of other athletes, and changes in a professional teams’ needs.
Loss of Value insurance generally applies in the context of injuries and illnesses, but what happens when a season has been forfeited? The NCAA cancelled all spring sports for the remainder of the season, effectively ending the careers of many senior athletes in spring sports. While some athletes may look to their Loss of Value insurance policies for protection, the policies may not apply if it the loss is not based on injury or illness.
If an athlete contracted the coronavirus the analysis is much different. When the NCAA is considering questions raised by an athlete’s illness it looks at “illness first manifested in the insured athlete during the period of this insurance which requires medical treatment by a physician and has negatively affected the athlete’s skills in a manner that causes substantial and material deterioration in his ability to perform in his occupation.” It seems clear that coronavirus is as an “illness” under this definition assuming the athlete requires medical treatment, the illness negatively affects the athlete’s skills, and the negative effect causes substantial and material deterioration in the athlete’s ability to perform as a professional.
In an attempt to help these athletes, the NCAA granted an extra year of eligibility. But what does such a decision do to those athletes who contracted the virus? Does it mitigate or diminish the potential losses of the athletes? As with other COVID-related matters, these unprecedented questions will likely need to be resolved through litigation.
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