By Richard C. Giller, of Reed Smith
In May of last year, former Penn State University linebacker Nyeem Wartman-White filed a lawsuit in Pennsylvania federal court against the wholesale insurance broker, International Specialty Insurance (ISI), and Lloyd’s of London seeking a payout under an insurance policy he had purchased from Lloyd’s (through ISI) which provided $1 million in permanent total disability (PTD) coverage and $500,000 in loss-of-value (LOV) insurance protection. The two mutually exclusive coverages served as a hedge against the possibility that a significant injury sustained by Wartman-White during his fifth and final season at Penn State might preclude him from ever playing professional football (PTD coverage) or might adversely impact the value of the first professional contract he signed (LOV coverage). Wartman-White went undrafted in the 2017 NFL Draft and has still not signed a contract with any NFL team.
Last week, it was reported that “Wartman-White is expected to cash a $500,000 insurance policy after, he says, a knee injury cost him a shot at the NFL.”[5] According to the website www.pennlive.com, “Ronnie Kaymore, a New Jersey agent who sold the disability policy to Wartman-White, told PennLive [that] his client would recover the ‘full amount’ of his loss of value claim” as part of an apparent settlement of his federal lawsuit. As one of the few attorneys in the country with a significant breadth of experience in handling PTD and LOV claims for professional athletes, a number of things stood out about this report, the most important of which was a sense of gratification that another athlete was reportedly going to recover a significant payout under a PTD/LOV insurance policy. However, this author also found the report to be curious in several respects.
As an initial matter, it is odd that anyone affiliated with a party to a lawsuit seeking recovery under an insurance policy (especially a case involving a PTD/LOV insurance policy issued to an athlete) would be allowed to discuss in the press either the amount or the terms of any settlement with the insurance company. It is standard practice for insurers to demand that a confidentiality provision be included in any settlement agreement which generally prohibits either party from disclosing the terms or the amount of the settlement. Perhaps the Wartman-White settlement is the exception to this general rule and perhaps Lloyd’s did not require a confidentiality provision in that case but if the normal protocol was followed in that case, then it is curious as to how the actual amount of the settlement with Lloyd’s and that the settlement was for the “full amount” of Wartman-White’s LOV claim became public knowledge. Regardless of the efficacies surrounding the publicity of the Wartman-White settlement, now that the amount of the settlement has been disclosed, the fact that Wartman-White was paid the LOV limits as his payout under the policy rather than the PTD limits raises further questions concerning both the settlement and the case as a whole.
If it is medically determined that, because of an injury sustained during the policy period, an athlete like Wartman-White could never play his sport professionally, the PTD portion of his insurance policy could result in a present value lump sum payment for the PTD limits ($1 million in his case). In contrast, if an injury sustained by the athlete during the policy period directly causes that athlete signing a contract for less than anticipated, the LOV portion of his policy would pay him the difference, up to the policy limits of $500,000 in Wartman-White’s policy, between the anticipated value of his first contract (listed in the Lloyd’s policy as $2.8 million over four-years, or $700,000 per year) and the reduced value of the contract he ultimately signed ($0 here). Because of the different triggering events for the two types of coverages they are mutually exclusive, meaning that Wartman-White could only receive a maximum of either a $1 million payout if he was unable to play professional football as a result of his injury or he could recover up to $500,000 if he received an offer from an NFL team for less than $700,000 a year (which, in this case was $0), but he would not be entitled to recover both limits. Given the facts of Wartman-White’s insurance claim, it appears he may have been entitled to the larger PTD payout rather than the lower LOV recovery.
At the time he purchased his PTD/LOV policy, Wartman-White was projected to be a potential sixth or seventh round draft pick, with a correlating maximum potential 4-year deal ranging between $2.4 and $2.6 million. As a general rule, PTD coverage can be secured for 100% of the anticipated first contract whereas LOV coverage is usually only provided for 60% of the player’s anticipated contract amount and, in LOV parlance, that lower coverage amount is commonly referred to as the “threshold amount.” In order to justify a 4-year/$2.8 million threshold amount for LOV coverage under normal underwriting criteria, Wartman-White would have to have been projected to be eligible for a 4-year/$4.67 million contract which equates to a mid to late second round pick in the 2017 NFL draft. For example, the 22nd pick of the second round of the 2017 draft (the 54th overall pick) signed a 4-year/$4.697 million deal while the 23rd pick of the second round signed a 4-year/$4.57 million contract.
Had the normal underwriting criteria been provided and utilized during the procurement process of the Wartman-White policy, it is unlikely that (1) an insurer would have offered LOV coverage for a potential sixth or seventh round draft pick and, (2) even if such coverage had been offered, the threshold amount would have probably been a 4-year/$1 million deal (60% of $2.5 million) rather than a 4-year/$2.8 million. This discrepancy raises additional questions as to how the insurance broker representing Wartman-White was able to procure such a high LOV threshold amount or why a projected sixth or seventh round pick would even consider purchasing such coverage. According to NCAA guidelines, LOV coverage is best suited for those athletes who are projected to be drafted in the first three rounds of the NFL or NHL drafts or in the first round of the NBA, MLB or WNBA drafts. Here, under the objective criteria usually employed by underwriters, the threshold amount for LOV coverage or, if purchased, the insured threshold amount may have been significantly lower.
At first blush, an athlete and their representatives might be impressed by the fact that an insurance broker presents a quote which indicates a threshold amount for significantly more than the objective evaluation of that player’s first or next contract but those athletes may best be served by heeding the old adage “if it sounds too good to be true, it probably is.” In fact, this type of short-term “victory” of securing an inflated threshold amount could actually do a tremendous disservice to the athlete when pursuing a claim under the policy. This is true because, in this author’s experience, it is common for insurance companies responding to athlete LOV claims to assert, as one of the primary defenses to paying the claim, that the wholesale insurance broker who placed the policy misrepresented the proper threshold amount and failed to provide the carrier with proper underwriting information. Here, it is curious that Lloyd’s would have issued LOV coverage to a projected sixth or seventh round NFL draft pick (let alone offer more than 100% of the total contract value as the LOV limits) and then, when presented with a claim arising out of that policy, not call into question the methodology underlying the threshold analysis or underwriting process performed by the wholesale broker.
Further, given the pre-2017 NFL draft predictions for Wartman-White, it is even more curious as to why he purchased LOV coverage at all, let alone, spending premium dollars to secure $500,000 worth of loss-of-value coverage when there was only a $115,705 difference in salary between the first pick of the sixth round ($2.579 million) and the last pick of the entire draft ($2.464 million). In other words, Wartman-White’s potential drop in the draft would not appear to justify paying any money to secure LOV coverage and, thus, the decision to purchase $500,000 of LOV coverage appears to have been based upon potentially questionable underwriting. Indeed, Wartman-White may well have been better advised to have used his premium dollars to purchase a stand-alone $2.5 million permanent total disability policy (the full value of his projected draft position) without LOV coverage, rather than purchasing just $1 million in PTD protection and an extra $500,000 in questionable LOV coverage. Now that his lawsuit has been settled, and through the lens of 20/20 hindsight (although this author questioned this premium issue almost a year ago), it is abundantly clear that Wartman-White should have purchased higher limits of PTD coverage and perhaps foregone any LOV coverage.
Wartman-White was not drafted in the 2017 NFL Draft. He has not signed a contract with any NFL team in the intervening 12-months and, unfortunately for him, it appears that his NFL aspirations seem to be all but over. In fact, on January 7, 2018, it was reported that the former Penn State linebacker joined the football coaching staff at Mississippi State as a defensive graduate assistant. That move suggests that, because of the injuries he sustained in college, he has been forced to abandon his dream of playing in the NFL. According to a declaration filed in the insurance case by Nyeem Wartman-White (in opposition to a motion for judgment on the pleadings filed by Lloyd’s), he attested to the following:
“I tore my right ACL in the first quarter of a football game against the Temple Owls on September 17, 2016.”
“This injury caused me to miss the entire 2016 football season.”
“This injury prevented me from participating in the NFL Combine” and “fully participating in the Penn State Pro Day.”
“This injury prevented me from being drafted in the 2017 NFL Draft as I was unable to perform at a level sufficient to compete in the National Football League.”
“At this time [September 19, 2017 — a year after his injury] I am physically unable to play my intended profession of professional football due to the injury to my right ACL.”
“At this time, I have not been officially cleared by a physician to participate as a professional football player due to the injury to my right ACL, which was over one year ago.”
“I have not received any offers or contracts by any teams competing within the NFL, AFL, or CFL.”
Based on Wartman-White’s own testimony it appears that his insurance claim more properly triggers coverage under the $1 million permanent total disability portion of his Lloyd’s insurance policy (especially since the 12-month elimination period in the policy has elapsed) rather than under the $500,000 loss of value portion of the policy. To date, however, no explanation has been provided as to why Wartman-White’s apparent payout is being made solely under his LOV coverage where the policy limits are one-half of the PTD coverage limits. Pursuant to “Joint Stipulation for Dismissal” filed with the United States District Court for the Middle District of Pennsylvania on April 24, 2018, Wartman-White and Lloyd’s mutually agreed to a dismissal with prejudice of the lawsuit without any indication as to the reason for the dismissal. Interestingly, according to the Court’s docket, no notice of settlement has been filed by either party.
While it was gratifying to learn that another athlete may recover a significant payout under a PTD/LOV insurance policy, it is also frustrating to learn that Wartman-White may not receiving the full amount of his PTD policy limits of $1 million but, instead, appears to have settled for fifty cents on the dollar of that protection. Equally frustrating is the fact Wartman-White could, and most probably should, have used his insurance premium dollars more wisely to secure greater PTD coverage and foregone any LOV protection which may have, in turn, realized a greater payout. LOV coverage really is best suited for those athletes who are projected to be first, second or third round NFL or NHL draft picks or first round NBA, MLB or WNBA picks.
[4] The word “curiouser” was first coined by Lewis Carroll in 1865 in Chapter II of his book, Alice’s Adventures in Wonderland [“‘Curiouser and curiouser!’ cried Alice (she was so much surprised, that for the moment she quite forgot how to speak good English).].” This author wrote an article analyzing the original complaint filed by Nyeem Wartman-White entitled, The Curious Insurance Case of Nyeem Wartman-White, that appeared in the in July 2017 edition of “Legal Issues in Collegiate Athletics” (Vol. 18, No. 9).
[5] See, www.pennlive.com “Ex-Penn State Linebacker Wartman-White to collect $500,000 insurance policy, agent says,” which appeared on April 25, 2018.
