Archive for the ‘Sanctioning/Governing Associations’ Category

Membership Agreement and Rulebook Liabilities

Avoid the shotgun effect by transferring the risk of loss to the responsible party

Statewide, region or national membership agreements and rule books that are published by sports/recreation associations often result in liability issues between the association and its local members (ex: teams, leagues) that need to be addressed. As usual, attempts need to be made to transfer the risk of loss to the responsible party whenever feasible.

Most membership associations sanction or approve various competitions on a local level. The sanctioning rules and agreements are often specified in both the membership agreement and the rulebook. Whenever a spectator or a participant is injured at a local competition, it is common for the association to be shotgunned into the lawsuit along with the local sports organization and its directors, officers, employees, and volunteers. The result is that the insurance carrier for the association is forced to spend money in defending the association in a lawsuit in which it probably had no business being involved. This could result in a less attractive loss history for the association and future rate increases or unavailability of coverage.

A national softball association client of our was shotgunned into a lawsuit after a coach assaulted an umpire during a local competition. The legal basis of recovery was that the coach was a hired employee of the association, which had a duty to investigate the criminal record of the coach prior to hire. Presumably, had they done this, they would have uncovered incidences of violence and woulSports organization rule bookd have never hired the coach. Of course, this is preposterous because coaches of local leagues are almost never employees of the national association. Nevertheless, such an incident can result in the insurance carrier of the association spending $5,000 to $10,000 in legal defense costs to have the association removed from the lawsuit.

It’s a matter of language

This trend of associations being shotgunned into lawsuits where they have absolutely no operational control at the local level has resulted in the need for additional risk management precautions. As a result, we have developed specific language for our clients outlining what the national association is and is not responsible for based on operational control. If such a statement is placed in the membership agreement or the rulebook, we have found that it is relatively easy to convince the plaintiff’s attorney to immediately drop the association from the lawsuit.

Adequate coverage is critical

Take into consideration that the best way to protect the association against liability is to make sure that adequate insurance is being carried by the local organizations and the tournament hosts. If feasible, it is best for the association to mandate minimum insurance requirements for both regular season and tournament competitions. The General Liability Policy of the local member should always name the association as an “additional insured.”

Please contact Sadler & Company at 800-622-7370 if you would like to have a no obligation consultation on the simple wording that can be inserted into your membership agreement or rulebook.

Potential Liabilities with Approved Suppliers

What to watch out for when endorsing products or services

Sports and recreation associations often enter into agreements whereby an endorsement is given to the products or services of an approved supplier or vendor, often in exchange for a royalty or some other consideration. Typically, such contracts are entered into between an association and vendors such as sporting good manufacturers or distributors, soft drink or beverage manufacturers, insurance providers, website providers, fundraisers, trophy providers, picture providers, etc.

When an association endorses a product or service, the association has a potential liability in the event that the product or service results in injury to a third party. Such injuries could take many forms including bodily injury, property damage, slander, libel, copyright infringement, trademark infringement, violation of constitutional or statutory rights, and other economic damages. The basic legal theory of recovery of the injured party against the association could be under either tort or contract law. Courts often say that an association owes a duty of reasonable care whenever it endorses a product or service and should do its homework in making sure that the product or service is not likely to result in injury or other damages.

For example, assume that a national baseball association endorses a particular manufacturer of a baseball bat in exchange for a royalty fee. It is conceivable that a pitcher  injured by a batted ball could sue both the bat manufacturer and the association that endorsed the manufacturer. The potential legal theory of recovery against the association could be that it was aware of some studies that indicated that a “lively bat” exceeding certain specifications was more likely to result in serious injury to a pitcher or infielder. It could be stretched in a lawsuit that the endorsement of the product amounted to an endorsement of its safety. A similar scenario actually occurred with Little League Baseball, Inc.

In order to protect against such claims, all agreements with approved suppliers should contain indemnification and hold harmless provisions in favor of the association. Furthermore, there should be a definitive statement that the association is in no way endorsing the safety of the product. A hold harmless or indemnification provision is generally worthless unless the approved supplier has a General Liability Policy, including coverage for products/completed operations and contractual liability. The association should collect certificates of insurance from approved suppliers that show evidence of the appropriate coverages being in force on an annual basis. These minimum insurance requirements should also be outlined in the contract with the association being named as an “additional insured” whenever possible.

Endorsing insurance agencies and carriers

Another example of a different type of injury would be when an association endorses an insurance agency or carrier to be its approved supplier of sports insurance. There have been some cases where an association endorsed a particular insurance carrier which became insolvent and was unable to pay its claims, and the association was sued for negligent endorsement of a product. The lawsuit would be based on the economic damages  incurred by the association members as a result of not having their claims paid.

It is critical that associations closely monitor the financial strength of any endorsed insurance carrier. The best way to monitor the financial strength of insurance carriers is through Best’s Key Rating Guide. As a general rule, it is preferable to never do business with a carrier with a rating of less than A-. Please note that even A-rated carriers can quickly become insolvent, so it pays to be vigilant.

Another alternative to lessen the risk of liability for negligent endorsement is to consider an advertising agreement in lieu of a product or service endorsement. Advertising fee agreements can be structured in a number of different ways, including sales based models.

Concussion Lawsuits Won’t End Football

How insurance and the law impact the concussion concerns

Will Oremus writes a well thought out explanation why concussion lawsuits will not end football. The main reasons cited are:

  • The initial medical expenses resulting from concussions and CTE are often not that high in most cases and symptoms take years to materialize. Therefore, the Accident Medical insurance carried by colleges, schools, and youth football organizations will not be hit hard since such policies limit payouts for medical bills to those that are incurred within one or two years from the date of the injury in most cases. Most CTE symptoms will show up years after a football career is finished and the Accident policy will be off the hook by that time. Therefore, these Accident carriers won’t take a big hit, which means that significant premium increases and market withdrawals are not likely.
  • The General Liability policies carried by schools and universities cover all the liability exposures such as slip-and-fall accidents, kids falling off playground equipment,  injuries at school sponsored events, etc., and concussion lawsuits are only a small portion of the overall risks. In 2011, only 13 catastrophic brain injuries were reported out of 4.2 million football participants nationwide.
  • The concussion and CTE-related lawsuits in the NFL are currently covered under Workers’ Compensation insurance (which overall allows for the collection of lower benefits as compared to civil lawsuits which would be filed under a General Liability policy) even though some 1500 former NFL players have filed lawsuits challenging Workers’ Compensation as the exclusive remedy.
  • The links between concussions and CTE to depression and suicide are not yet rock solid, even though some limited studies show a connection between NFL participation and CTE.
  • In order to win a lawsuit, a player will need to prove negligence (1. Duty owed to act as reasonable governing bodies, administrators, trainers, coaches, etc. in protecting football players, 2. Breach of that duty by not following accepted safety standards, 3. Breach was proximate direct cause of the injury, and 4. Damages resulted). As a result of the difficulty in proving negligence, the NFL lawsuits are alleging that the league knew about the dangers of CTE, but hid it from the players.
  • In lawsuits against colleges and high schools, no one is claiming that they hid evidence that football resulted in CTE. As a result, the lawsuits against colleges high schools are based on failure to follow accepted safety standards on not removing possibly concussed players from games and allowing too early return to play which may result in second concussion syndrome.
  • Even if a public school or university as an entity, or a coach or other school employee is negligent, many states have governmental or sovereign immunity statutes that protect against liability or at least limit liability to an amount such as $300,000, $500,000, or $1,000,000, depending on the state’s version of the law. These immunity statutes can be defeated upon proving gross negligence.
  • Some state concussion statutes also limit the liability of coaches, trainers, and other medical professionals when complying with the requirements of the statute unless they are grossly negligent.
  • The assumption-of-risk defense to negligence can be a powerful tool if the players receive an adequate and documented risk warning of the dangers of concussions.
  • If universities and high schools follow the concussion safety standards outlined by state statutes or their state or national sanctioning/governing body, they have a high level of built-in protection.
  • The governing bodies such as the NFL, NCAA, and National Federation of State High School Associations will implement rule changes to provide more protection as more research results become available.

We encourage you to read Oremus’ full article and our article, “The End of Youth Football? Not so fast.”

Source: Will Oremus. “After Further Review, Why Concussion Lawsuits Won’t Bring An End To Football,” May 10, 2012.

The End Of Youth Football?

Not so fast

The media has been practically salivating about a potential end of football. There’s no end to high profile articles outlining doomsday prophesies of the chain of events that could force the cancellation of football programs on every level due to lack of liability insurance (see Concussions and the Future of Football), connecting NFL player suicides to brain injuries, and lawsuits against colleges and high schools for second-impact syndrome injuries early return to play. These worst-case scenarios are certainly sensational, but I say not so fast.

I have recently been flooded with media requests for interviews on this topic. I am responding with this blog posting as I don’t have time for all the requests. What follows is my first takebased on the present information at hand.

We need stay away from decisions made out of fear arising from sensationalism. Instead we should make calm decisions based on science. If there is no scientific research on an issue, new studies should be immediately launched and carefully reviewed before conclusions are drawn and changes made.

There are three types of brain injuries that require specific risk management response strategies:

  1. The initial concussion
  2. The more dangerous second-impact syndrome due to “too early return to play”.
  3. The cumulative less-than-concussion events known as chronic traumatic encephalopathy or CTE (ex: helmet to helmet contact) that may result in brain damage over the long term.

The risks of these brain injury situations and the required protective responses need to be studied differently in the context of youth, high school, college, and professional athletes. The level of aggression, speed, and strength of the players increases tremendously from youth football to high school football as does the concussion risk. Also, the number of cumulative helmet-to-helmet hits and other head impacts increase significantly after high school football. The cumulative impacts over a college career are more than double those over a high school career and the number of impacts for pro players are significantly higher, even though the NFL has recently changed practice rules to limit helmet-to-helmet contact.

Other complicating factors that may result in additional brain damage and in higher suicide rates in the NFL are the past use of steroids, other drug additions, and unstable lifestyles.

Here are some thoughts from Joe Galat, president of American Youth Football, Inc. (AYF), the largest youth football andConcussion risk cheer organization in the U.S. with tackle football ages 5 to 15:

“…structured play is always safer than unsupervised activities. Today’s headlines dealing with the very disturbing developments in the National Football League may discourage some parents from allowing their children to play football… However, I am asking you to not compare your child’s participation with those who play in the extreme world of the NFL. Not just yet. The highways are full of safe drivers who don’t compete in “the extreme sport” of NASCAR. Like driving a car, it is important that kids learn safe techniques while playing youth football. When fundamental techniques are ingrained in a young player they become habits; safe play is the end result. When President Theodore Roosevelt instructed Knute Rockne to make the game safer, the players wore leather helmets and very little padding. Many of today’s safety issues are being solved through research, technology and rule changes. The leather-heads would hardly recognize today’s game.”

My primary interest is studying the concussion risks in youth tackle football. so my comments will be limited to that context.

Are the concussion rates in youth tackle football significantly worse than those in youth baseball, softball, basketball, and soccer? And if not, why are we not hearing anything about the end of those other sports or all youth sports, for that matter?
According to my injury database, the percentage of concussions to total injuries of athletes ages 5 to 15 are as follows:

Youth football 5.64%

Youth baseball 3.1%

Youth softball 2.43%.

According to Pat Pullen of Pullen Insurance Services, Inc., the percentage for youth soccer is 4.5%. I don’t have the percentage on basketball, but it is likely to be similar to baseball. In other words, how can you single out youth football without including the other sports?

What types of insurance policies would youth football organizations carry to cover medical bills from brain injuries and resulting lawsuits?

Youth football organization should carry Accident and General Liability insurance policies with sufficient limits.

The Accident policy pays medical bills of injured participants  after existing family health insurance has responded. Of course, medical bills include all concussion-related medical expenses that are approved by the insurance carrier. The limit on the Accident policy should be at least $100,000 for youth tackle football to adequately respond to most medium-to-serious concussion incidents. Accident policies typically only cover medical bills incurred up to one or two years from the date of the injury depending on the plan design.

A General Liability policy should also be carried to protect the youth sports organization and its directors, officers, employees, and volunteers against lawsuits alleging bodily injury, property damage, and personal/advertising injury. In addition to paying for legal defense costs, this policy will also pay covered costs for a settlement or adverse jury verdict. In the concussion context, the organization, its administrators and coaches could be sued by the injured player under a number of legal theories such as failure to use up-to-date helmets, make sure that they are inspected for defects, and are properly fitted, failure to have adequate EMS services available, failure to have an emergency evacuation plan, failure to adequately train coaches on concussion recognition and response, failure to remove a concussed or possibly concussed player from practice or game, failure to have an adequate return-to-play policy, and failure to adopt and implement rules to limit certain types of contact.  The General Liability policy should have an Each Occurrence limit of at least $1 million and higher options should be considered. General Liability policies with an “occurrence” policy form will cover claims that are reported in later years as long as the bodily injury occurred when the policy was in force. This is important in the youth sports context as a minor may wait until the age of majority, which is 18 in most states, plus two years (depending on state law) for the statute of limitations to run before filing a claim. Some General Liability policies use a “claim made” form which can present complications in providing coverage for lawsuits that are filed in later years in the event that the policy is not renewed every year or if the retro date is not properly set.

For an example of the different policies/coverages and the per team prices of a comprehensive insurance program for youth football, see the American Youth Football plan.

Would these lawsuits against youth football organizations likely be successful?

It depends on the nature of lawsuit and the facts in each case. Most would be negligence-based, which requires all of the following elements:

  1. Duty owed to act as reasonable and prudent sports administrators and coaches (based on state concussion laws, national standards per sanctioning/governing body rules, and accepted risk management practices)
  2. Breach of that duty
  3. Breach was proximate cause of injury
  4. Damages result.

All 50 states and the District of Columbia have enacted concussion laws that protect youth athletes. Some state laws only apply to school sports or youth sports organizations that use school property, whereas others apply to all youth sports organizations, even if not affiliated with a school. Little League Baseball, Inc. provides information regarding the  these laws.

Youth football organizations must follow the concussion rules of their state and/or their governing/sanctioning body. Failure to follow state law or an organization’s own rules can be a prima facie case of negligence, assuming that requirements 3 and 4 above are met. If a youth football organization is not part of a sanctioning/governing organization, it must follow nationally-accepted risk management practices which may lead back to the rules of the sanctioning/governing body. Furthermore, certain national sanctioning/governing bodies for youth football may instruct members to follow their state’s version of the rules of the National Federation Of State High School Associations.

There is a certain amount of built-in liability protection in following the safety rules outlined by state law and of the national sanctioning/governing bodies – as well as danger in not following them.

As for liability arising from cumulative CTE, a lot more scientific study needs to be Concussion researchperformed in this area. If there is a scientific basis for this concern, the impact on youth tackle football will hopefully be minimal due to the much smaller number of hits at lower forces as compared to high school, college, and the pros. An initial diagnosis of CTE can be made from brain imaging and a patient’s medical history. However, definitive proof of the severity of CTE currently requires a risky brain biopsy or autopsy. Therefore, the major liability concern for youth football at this time is from initial concussions and second-impact syndrome.

On the other hand, colleges and the pros (and to a lesser extent high schools) should worry more about liability arising from CTE since the number of helmet-to-helmet hits increase dramatically after youth football. CTE is what really scares the sports insurance industry due to the unknowns that could be uncovered from ongoing research and the possibility of class-action lawsuits due to the larger number of participants exposed to CTE compared to actual concussions. Also, CTE is much harder to address from a risk management point of view compared to initial concussions and second-impact syndrome injuries.

Are insurance premiums rising for youth tackle football General Liability insurance?

No, not at this time due to concussions. However, the rates are currently rising due to other reasons. The prices for General Liability insurance for tackle football is a function of the loss history from all sources (not just concussions), overall trends in commercial property & casualty insurance (currently rising slightly), and trends with the carriers that specialize in the sports niche. If claims payments from concussion lawsuits impact the loss history, rates will rise. So far, to the best of my knowledge, there is not a problem with concussion lawsuits in youth tackle football. But, that could always change.

What are the attitudes of the underwriters at the insurance carriers that write youth tackle football insurance?

The sports insurance industry is known for obsessing on a particular risk at any given time whether sex abuse or molestation, transportation of athletes, or dangerous cheer stunts. The concussion risk is the most recent and only time will tell if their fears are founded. And the result could be different for youth tackle football and high school versus college and the pros.

Some of the underwriters for carriers specializing in the youth sports niche are scared about what could happen if concussion lawsuits escalate with a series of large settlements or adverse jury verdicts or class actions. They point out that a youth participant can wait until the age of majority plus another two years for the statute of limitations to run before filing a lawsuit. This type of long tail exposure, along with all the recent media attention and the unknown results of yet-to-be-released scientific research, definitely raises concerns for sports insurance underwriters. Some have discussed wanting to place an aggregate cap on concussion-related lawsuits similar to the special aggregates that are often used for sex abuse and molestation lawsuits. Carriers definitely want to know what precautions are being taken in terms of risk management controls to limit the frequency and severity of injuries. They are also interested in coaching education and if it incorporates instruction on concussions. Once the legal landscape settles down, it will be easier to predict the effects on availability of liability insurance, exact coverages, prices, and required risk management controls.

Will pressure exerted by the insurance carriers (as opposed to angry parents and government legislation) force youth football organizations to take the concussion issue more seriously and to implement changes to safety standards?

It is hard to predict if concussion lawsuits will actually rise to a crisis level in the youth tackle football context. If so, lack of availability of General Liability coverage and premium increases will impact the behavior of sanctioning/governing bodies and local tackle football organizations.

However, I believe that the sanctioning/governing bodies are already moving to address concussion concerns and want to preserve the popularity of the sport and their participant base.

Where is the state of youth tackle football going from a liability/insurance perspective?

Helmet standardsThe youth football sanctioning/governing bodies and local organizations will likely attack the problem with the following strategies:

  • Request more scientific studies on larger numbers of participants on the forces that cause concussions in youth tackle football. These studies would be conducted both in the lab and in the field by engineers, doctors, and insurance carrier claim departments. Most of the existing studies are on the high school, college and pro level. Different dynamics are involved in youth tackle football including lower impact forces and decreased development of neck muscles that can absorb impact.
  • Continue to ramp up the concussion education of administrators, coaches, parents, and players on the dangers or concussions, warning signs from perspective of the injured player, warning signs from perspective of trainers, doctors, and coaches, mandatory removal from play when concussion is suspected. and return-to-play policies.
  • The use of baseline neuropsychological testing to compare to post-concussion event testing as a tool to determine appropriate return to play.
  • Policies and procedures to teach proper blocking and tackling techniques and to limit contact during practice.
  • Formal certification/training of coaches to educate on concussion issues.

Professional Liability Insurance

or Errors & Omissions for sports organizations

Some sports and recreation organizations don’t realize that they have liability exposures that can only be covered by a Professional Liability insurance policy, which is also known as Errors & Omissions insurance. These two terms were once distinguishable, but are now almost interchangeable in the insurance industry. When discussing their impact on sports and recreation organizations, they are considered to be one in the same.

Which policies cover what

A General Liability policy covers certain lawsuits alleging bodily injury and property damage. A Directors & Officers Liability policy covers certain lawsuits alleging managerial negligence. A Professional Liability policy covers certain lawsuits alleging purely economic damages arising out of the performance of member services with no accompanying bodily injury or property damage.

The following are examples of exposures that make a Professional Liability policy beneficial for a sports and recreation organization:

  • A player alleges that improper instruction by a coach resulted in the loss of an athletic scholarship or professional sports career.
  • A player alleges that mistakes made in his/her recruiting service profile resulted in the loss of an athletic scholarship or professional sports career. Sports organizations that publish player statistics or strengths and weaknesses may have this exposure.
  • A member team/league alleges financial losses due to negligent management or financial advice provided by the sanctioning sports organization. This exposure is common when the relationship between the sanctioning body and team/league is that of franchisor-franchisee in a for-profit model.
  • Certification or accreditation of an applicant or member is denied or revoked and, as a result, alleges economic damages.

Some General Liability carriers may be willing to add a Professional Liability endorsement for minor Professional Liability exposures for no charge or a small charge. Otherwise, a stand-alone Professional Liability must be purchased. The premium for such a policy will be based on revenues and minimum premiums start in the $1,500 to $2,500 range.

Contact Sadler Sports & Recreation Insurance at 800-622-7370 if you would like to further discuss these exposures for your organization

Liquor Liability Insurance for Sports/Recreation Organizations

Liquor, liability and the law

Sports and recreation organizations that serve or furnish beer, wine, or liquor may be held liable for injuries to patrons or other third parties when:

  • the patron was under the legal drinking age
  • the patron was obviously intoxicated
  • statutes, regulations, ordinances or case law impose “strict liability” for the sale of alcoholic beverages, even if it can’t be proved that the serving of the alcoholic beverage was the proximate cause of the injury.

Common examples of alcohol related incidents resulting in potential liability for sports and recreation organizations include auto accidents with injuries to the intoxicated driver, passengers, or other third parties, fights resulting in injuries to participants, and vandalism damages to property. The frequency of these incidents tends to be low but the severity potential is very high.

Host liquor liability coverage

The standard General Liability policy form has an exclusion for insureds “in the business of manufacturing, distributing, selling, serving, or furnishing alcoholic beverages.” The key is to correctly interpret the meaning of in the business of. Some courts have ruled that nonprofit organizations are not in the business of, even if they regularly sell alcoholic beverages and as a result have what is known as “host liquor liability” coverage under their existing General Liability policy. However, there is at least one high profile decision that reached the opposite conclusion based on a number of additional factors. Also, claims adjusters are hesitant to provide host liquor liability coverage for the sale of alcohol because they believe that it is contrary to what the drafters of the policy form intended. As a result, some experts advise that nonprofits that sell alcohol or that are required to take out a liquor license or permit should not rely on the host liquor liability coverage under their General Liability policy.

Furthermore, some General Liability policies include endorsements that amend the terms of the standard policy form which has the effect of definitively taking away the host liquor liability coverage for organizations that make a charge or if the event requires a liquor license or permit.

Sports and recreation organizations should closely examine their policy form with their insurance agent and review case law in their state before relying on host liquor liability coverage.

Liquor LegaLiquor liability coveragel Liability coverage

Sports and recreation organizations that can’t rely on the host liquor liability coverage under their General Liability policies should purchase Liquor Legal Liability insurance. This coverage may be purchased as either a stand-alone policy or as an endorsement to the General Liability policy.

Organizations may sell alcoholic beverages to patrons on a direct basis with their own staff or may contract out the sales of alcoholic beverages to a vendor. Primary Liquor Legal Liability insurance is needed in the event that the staff of the organization makes the alcohol sales. On the other hand, Contingent Liquor Legal Liability insurance is needed if a vendor that holds the liquor license makes the alcohol sales.

Estimated Premium Costs

A leading source for Liquor Legal Liability insurance for sports organizations, K&K Insurance Group, Inc., provides the following guidelines for premium indications:

Minimum Premium: Range from $300 to $1,000 depending on the type of risk, the state where risk is located, and risk management controls.

Rate Per $1,000 of Beer, Wine, and Liquor Sales For Primary Liquor Legal Liability: Varies from $5 to $25 depending on past loss experience, state where sports organization is located and the type of alcohol served.

Rate For Contingent Liquor Legal Liability: The rates are the same as for Primary except that the sales are based on the percentage that is received by the sports organization. For example, if the contract provides that the sports organization is to receive 25% of the alcohol sales made by the vendor, the rate would only be applied to such 25%.

The following are additional considerations if a vendor sells alcohol for sports or recreation organizations.

  • A written contract should be in place to protect the legitimate interests of the organization.
  • A contract should include strong indemnification/hold harmless language in favor or the organization and its directors, officers, employees, and volunteers against any and all claims, damages, and expenses (including reasonable attorney’s fees) arising out of the sale of alcoholic beverages.
  • In addition to providing evidence of the normal insurance policies that are required of vendors such as Workers’ Compensation, General Liability, Business Auto, etc., the vendor must provide evidence of current Liquor Legal Liability coverage with an insurance carrier that is rated at least A- by A.M. Best. The vendor’s policy must have a limit of at least $1 million Each Claim (though a limit of $5 million or more is recommended). The sports/ recreation organization should be named as an additional insured on the policy.

Why Contingent Liquor Legal Liability is needed

Even if the vendor provides an indemnification/hold harmless provision in favor of the sports organization and carries its own Liquor Legal Liability policy, things can still go wrong. For example, the vendor’s insurance policy may be canceled due to non-payment of premium or its aggregate limit may be exhausted by a prior claim during the policy year.

Sports and recreation organizations that contract out the sales of alcohol are usually shotgunned into liquor liability lawsuits under the following theories of recovery:

  • The organization was negligent in its hiring and retention of the alcohol vendor that was known to cut corners and turn a blind eye to safety rules in serving patrons.
  • The security provided by the organization should have noticed that a patron was intoxicated and been ejected him before purchasing additional drinks.
  • The ticket taker provided by the organization should have noticed that a patron was intoxicated and denied admission.

Please visit our risk management library for additional risk management controls to protect against liquor lawsuits, including our article “Liquor Liability for Sportsplexes.”

Umbrella/Excess Liability Insurance for Sports/Recreation Organizations

Added protection against catastrophic lawsuits

Sports and recreation organizations purchase Umbrella/Excess Liability insurance to protect against catastrophic lawsuits that exceed the liability limits of underlying policies such as General Liability, Business Auto, and Employers Liability (Coverage Part 2 under Worker’s Compensation). Umbrella/Excess policies can provide additional peace of mind and should be considered as part of a comprehensive insurance program. At a minimum, sports and recreation organizations should at least get a quote for an Umbrella/Excess Liability policy just to find out the cost.

In the past, Umbrella Liability policies provided broader coverages than Excess Liability policies. Today, however, most Umbrella Liability forms are watered down to provide only slightly broader coverages than Excess Liability forms. The important thing to remember is that there is usually only a slight difference between Umbrella Liability and Excess Liability with regard to the true protection provided.

As an example of how an Umbrella/Excess Liability policy increases the limits of an underlying policy, assume that a sports or recreation organization carries an Umbrella/Excess Liability policy with a limit of $1 million. Also assume that the same organization carries a General Liability policy with an Each Occurrence Limit of $1 million and a Business Auto policy with an Auto Liability limit of $1 million. In this example, the total limits of coverage to respond to a claim would be $2 million for General Liability type claims and $2 million for Auto Liability type claims.

3 Main Purposes of a True Umbrella Liability Policy

  1. Increase Limits of Coverage. An Umbrella provides additional limits of coverage over and above the underlying General Liability, Auto Liability, and Employers Liability policies. Before this excess coverage is provided, the insured must maintain the underlying policies at a certain limit of liability to coordinate with the Umbrella policy requirements. The most common underlying limit requirements are as follows:
  • General Liability: $1 million Each Occurrence; $2 million General Aggregate; $2 million Products /Completed Operations Aggregate; $1 million Personal/Advertising Injury
  • Business Auto Liability: $1 million per claim
  • Employers Liability: $500,000 Each Accident; $500,000 Disease – Policy Limit; $500,000 Disease – Each Employee

Coverage can be customized to increase the limits of all or just one of the above underlying policies. For example, some organizations may choose to only purchase an Umbrella/Excess Liability policy to increase the limits of their General Liability policy.

  1. Drop-down Coverage: This feature is provided in case an underlying policy’s aggregate limits are exhausted. In such a circumstance, an Umbrella policy will drop down and pay for covered liability on a primary basis. For example, assume that an underlying General Liability policy has an Each Occurrence limit of $1 million and a General Aggregate limit of $1 million. During the policy year, the General Liability policy pays a $1 million claim and then has another claim of $500,000. The Umbrella policy will drop down to pay the $500,000 claim.
  1. Broader Coverage: The Umbrella offers broader coverage for certain liability risks that are not covered by the underlying policies. This usually occurs when the Umbrella policy has fewer or narrower exclusions than the underlying policy. For example, a General Liability policy may exclude liability arising from non-owned watercraft 26’ or more in length, whereas an Umbrella policy may exclude liability for non-owned watercraft 51’ feet or more in length. Therefore, an Umbrella Liability policy may pick up a claim arising out of a non-owned watercraft between 26’ and 51’ in length. The broader coverage feature is usually subject to a self-insured retention, which is similar to a deductible. Self-insured retentions are typically $10,000 and must be paid out of pocket before the broader coverage feature will respond.

A true Umbrella Liability policy provides coverages under 1, 2 and 3 above, whereas an Excess Liability policy only provides coverages under 1 and 2.

Both Umbrella and Excess Liability Policies May Provide Narrower Coverage Than Underlying Policies

Umbrella Policy for Sports organizationsIn the context of sports and recreation organizations, it’s common for Umbrella and Excess policies to have exclusions that are not found on the underlying General Liability policy. The most common examples of such exclusions include Non-owned and Hired Auto Liability (if endorsed onto General Liability), Sex Abuse and Molestation and Brain Injury/Concussion.  However, the Umbrella or Excess Liability carrier may provide a buy-back for these common exclusions.

Limits and Pricing

Umbrella/Excess Liability policies may be purchased in increments of $1 million. Each increment is subject to a minimum premium ranging from $500 to $2,500 depending on the carrier. The actual premium may be higher than the minimum premium depending on the loss exposures. The most common premium basis for exposures to loss includes number of participants, number of teams, payroll of employees, revenues, number of vehicles, etc. Umbrella/Excess Liability quotes are often expressed as a percentage of the underlying premiums. For example, some policies are priced at a rate of approximately 20% of underlying premiums for the first layer of $1 million. Further discounts may be applied to each additional layer of $1 million due to the decreasing probability of a claim breaching the additional limits.

How High A Limit Is Needed?

There is no definitive way to answer this question. Factors to be considered include the value of the assets at risk, exposure units creating the risk (ex: the greater the number of participants, the greater the chance of a catastrophic injury and resulting claim), recent court cases, limits carried by peer organizations of similar size, affordability, and the particular severity risks that are faced by a sports or recreation organization (ex: transportation of participants, sex abuse/molestation).

Workers’ Compensation for Sports/Recreation Organizations

Understanding what’s required and why

Workers’ Compensation is an important but often overlooked insurance policy for sports and recreation organizations. Many smaller organizations attempt to only carry Accident insurance when Workers’ Compensation may be required by state law. Workers’ Compensation tends to be more expensive, more difficult to administer, and less readily available from the private marketplace as compared to Accident insurance.

This article will explain the requirement to carry Worker’s Comp, the benefits it provides, what premiums are based upon, and how to properly set up a policy.

Is your organization required to carry Workers’ Compensation?

It can be difficult to determine if a particular sports or recreation organization is requiredWorker's Comp for Sports Organizations to carry Workers’ Compensation as state laws vary. Typically, most states require an organization to carry Work Comp if they regularly employ three or more employees, though it may be two or more or four or more in some states. The legal definition of employee includes officers and may also include workmen of subcontractors. Things are further complicated by various exemptions from the employee count if compensation is below a certain level. Some states have laws exempting certain sports league workers.

The best way to determine if Worker’s Comp is required is by contacting your state’s Workers’ Compensation commission. Our article Do Leagues Need Workers’ Compensation Insurance? may also offer some clarity.

One thing is certain in every state: if your organization is required to carry Worker’s Comp and fails to do so, and if a worker is injured, the penalties and liabilities can be severe. Most states have an uninsured employers fund that will pay the normal benefits on behalf of an injured worker whose employer failed to carry Worker’s Comp. After paying the benefits, the fund places a lien equal to the amount of benefits paid against the non-complying organization, which can easily result in bankruptcy.

Workers’ Compensation policies consist of two coverage parts

Part One: Statutory Workers’ Compensation 

This pays the benefits to injured workers in accordance with the controlling state’s Workers’ Compensation Act. State Workers’ Compensation laws were developed to provide efficient compensation to injured workers and to protect employers against lawsuits. As a result, Workers’ Compensation is a no-fault system that pays without regard to negligence or wrongdoing on the part of the employer.

Below are the benefits Workers’ Compensation insurance pays to employees or employees of uninsured subcontractors who suffer occupational injuries or diseases while “on the job” and “in the course of employment.” Benefits vary from state-to-state.

  • 100% of past and future medical bills
  • Rehabilitation expenses
  • Weekly lost wages based on a formula (usually 66.6% of average weekly wages for the prior year) for a predetermined number of weeks subject to a waiting period and a minimum and maximum payroll amount
  • Lump sum awards for disabilities
  • Lump sum awards for disfigurements
  • Death benefits to dependents
Part Two: Employers Liability

Employers Liability responds to legal liability from occupational injuries and diseases to employees where recovery is allowed by law. Such claims are somewhat rare, but injured workers and third parties can sometimes file lawsuits to trigger coverage under Employers Liability. Examples of such lawsuits include loss of companionship by spouse, loss of household services by a family member, dual capacity lawsuits, third-party-action-over, and consequential bodily injury.

Operations in multiple states

Workers’ Compensation policies should be customized to account for multi-state operations since each state has its own Workers’ Compensation Act with unique requirements and benefits. Failure to properly set up the policy can result in uncovered claims. Unfortunately, it can be difficult to find a single insurance carrier that is licensed in all states, which can result in a hodgepodge of separate insurance policies and administrative hassle of separate billings and policy audits.

It is important to properly list all states with both known and unknown exposure under sections 3A and 3C of the policy. Otherwise, coverage in a particular state will not be triggered. This can be a problem since injured employees and their attorneys “forum shop” to bring their claim for Workers’ Compensation in the state that will have the highest level of benefits. The various state Workers’ Compensation acts may allow choice of state between state of hire, state of residence, state of primary employment, state of pay, state of injury, or state in agreement between employer and employee. For example, assume that the claimant has a choice between filing for benefits in the states of SC and VA and that the VA benefits are $20,000 greater and that VA was not properly added as a covered state. In this scenario, it is possible that the Workers’ Compensation carrier would pay benefits up to the SC level but the insured sports organization would be responsible to pay the remaining $20,000 out of pocket.

Section 3A (Known State Exposure): Section 3A of the policy triggers coverage for each state where the insured “knows” that an employee or uninsured sub will be working as of the effective date of the policy. The definition of “known work” is subject to varying interpretations. Some insurance experts advise that 3A should be limited to states where an employee is domiciled or where there is an existing contract for work as of the effective date. These experts don’t see the need to list states through which salesmen will be traveling or in which executives will be attending trade shows. However, other experts and some state Departments of Insurance would advise listing all states within which employees have even minimal contact under Section 3A.

Section 3C (Unknown State Exposure): Section 3C of the policy triggers coverage for states in which the insured is not aware of potential exposure as of the effective date of the policy. This section should included all states except those listed in Section 3A and the monopolistic states. It is important to note that Section 3C will not provide benefits for any state which should have been listed as a Section 3A state. The insurance carrier should be notified immediately if work begins in a 3C state after the effective date of the policy.

Monopolistic States: Sports organizations with worker exposure in the monopolistic states of ND, OH, WA, and WY must purchase Workers’ Compensation coverage directly from the respective state fund. Coverage for these states can’t be purchased through the private insurance marketplace. Since Employers Liability coverage is not available through the monopolistic state funds, a coverage known as “Stop Gap Employers Liability” should be endorsed onto either a private marketplace Workers’ Compensation policy or the General Liability policy.

Federal compensation laws

Some sports organization may have operations that fall under various federal compensation benefit laws that are not covered by the standard Workers’ Compensation policy form. If such exposure exists, it must be endorsed onto the existing Workers’ Compensation policy or a stand-alone policy must be purchased. Failure to address these federal exposures can create large uninsured liabilities as the benefits owed under these federal laws tend to be much higher than those under state Workers’ Compensation.

Examples of federal benefit laws creating liability include U.S. Longshoremen and Harbor Act (operations over navigable waters), Jones Act (seamen on vessels), and Foreign Defense Base Act. The USL&H and the Jones Acts may apply to certain water-based sports organizations.

How a Workers’ Compensation premium is determined

A Workers’ Compensation premium is based on a rate per $100 of projected payroll per classification code. Various types of classification codes are available for different types of workers such as clerical, sales, coaches, athletes, camp instructors, umpires, gate, concession, and field maintenance workers. Strict classification rules are set by the National Council on Compensation Insurance or the state equivalent. Each classification is assigned a different rate in each state depending on the statistical risk of injury. Rates can be further adjusted by a rating factor called an experience modification that is promulgated by NCCI (or state equivalent) that rewards or penalizes an insured based on their past safety and loss record. At the end of the policy year, an audit is performed to determine the actual payrolls and the premium is adjusted.

Sports risks are perceived as high risk

Insurance carriers that write Workers’ Compensation insurance may perceive sports and recreation organizations as high-risk business and often are not willing to voluntarily write this coverage. As a result, many end up being placed in state assigned risk pools that result in higher rates and less flexibility to add needed states of coverage. Of particular concern to insurance carriers are sports organizations with employee exposure in the areas of professional athletes, coaches, and umpires and the rates for these classes can be shockingly expensive and can vary greatly from one state to the next. On the other hand, organizations with employee exposure limited to the areas of clerical, officer travel, and event management are not considered to be high risk.

Get a quote

Contact Sadler Sports & Recreation Insurance at (800) 622-7370 to inquire about receiving a Workers’ Compensation proposal. We will ask you to provide information about the types of work and annual projected payrolls of your various types of workers.


Employment Practices Liability

Understanding risks as an employer

Employment Practices Liability insurance (EPLI) is an important insurance policy for sports and recreation organizations to cover expensive claims. This policy is usually purchased either in combination with a Directors & Officers Liability policy or can be purchased on a standalone basis.

What’s covered

Employment Practices Liability insurance covers liabilities that can out of the employer – employee relationship. The primary types of covered liabilities include wrongful discipline or termination, discrimination, and sexual harassment. The better coverage forms typically Sports Employment Practice Insurancecover a number of other workplace liabilities that are created by state and federal statutes and case law.

Below are samples of the types of employment offenses that are covered by one of the broader forms on the marketplace through Chubb:

  • Breach Of Employment Contract can refer to an oral, written, or implied contract, including policy obligations listed in employee handbooks, manuals, etc.
  • Employee Discrimination is any violation of employment discrimination laws including wrongful termination, demotion, denial of tenure, refusal to hire, and refusal to promote based on person’s race, religion, creed, national origin, disability, sex, HIV status, sexual orientation or any other status protected by local, state, or federal  or common law.
  • Employment Harassment includes sexual harassment, unwelcome sexual advances, or requests for sexual favors as a condition of employment, basis for employment decisions, to create an intimidating and hostile work environment. In addition, non-sexual workplace harassment that creates an intimidating and hostile work environment.
  • Retaliation against an employee for exercising rights under law, refusing to violate law, or disclosing or threatening to disclose a violation of law.
  • Workplace Tort includes employment-related defamation, invasion of privacy, negligent evaluation, wrongful discipline, retention, supervision, hiring, misrepresentation, infliction of emotional distress/mental anguish/humiliation, failure to consistently enforce corporate policies and procedures.
  • Wrongful Employment Decision unsubstantiated demotion, denial of tenure, or failure to promote.
  • Wrongful Termination unsubstantiated termination, dismissal, discharge, or constructive termination.

 Third-party Discrimination/third-party liability

Many of the modern policy forms break out an optional coverage for third-party discrimination or third-party liability. A third party is often defined as someone other than an employee, which can be a customer, vendor, service provider, or other business invitee of the insured. In order to trigger coverage for third-party claims alleging discrimination  or sexual harassment, this coverage option must be triggered.

Common EPLI Policy Exclusions for Liability Or Benefits Arising Out Of:

  • Employment Retirement Income Security Act (ERISA)
  • Consolidated Omnibus Budget Reconciliation Act (COBRA)
  • Occupational Safety & Health Laws (OSHA)
  • Fair Labor Standards Act
  • National Labor Relations Act
  • Benefits under Workers’ Compensation, Unemployment Insurance, Disability Insurance or similar local, state, federal, or common law benefit laws
  • Racketeer Influenced And Corrupt Organizations Act (RICO)
  • Sherman Anti-Trust Act or similar laws
  • Punitive or treble damages
  • Intentional or criminal acts
  • Assumption of contractual liability (ex: indemnification / hold harmless provisions in PEO or employee leasing contracts)
  • Costs to modify building under Americans With Disabilities Act
  • Employee benefit stock options
  • Any employment practices wrongful acts that occurred prior to any “retro date” or “pending or prior date”
  • Prior employment practices claims subject to any notice given in any application for coverage

Important EPLI Underwriting Considerations

Some important underwriting considerations for acceptability of a risk or for pricing discounts include recent terminations, turnover rate, layoffs, mergers/acquisitions, salary ranges, incident and loss history, and risk management practices that have been implemented including the existence of an employee handbook.

Contact Sadler Sports Insurance at 800-7622-7370 if you are interested in getting a quote for this important coverage. We have existing programs for local sports and recreation organizations where Employment Practices Liability can be purchased in combination with a Directors & Officers Liability policy for as little as $300.

Directors & Officers Liability (D&O) Insurance

Sports and recreation organizations face common lawsuit exposures that require Directors & Officers Liability insurance

Sports Insurance policyOne of the most common misconceptions is that a Directors & Officers Liability policy covers directors and officers against all types of lawsuits. The fact is Directors & Officers Liability insurance protects the insured organization, its directors, officers, employees, and volunteers against lawsuits based on claims of financial mismanagement, discrimination, violation of rights of others under state, federal, and constitutional law, and failure to follow rules or bylaws when making an administrative decision.

These types of lawsuits are not covered under a General Liability policy, which only responds to lawsuits alleging bodily, property, advertising, or personal injury Likewise, a Directors & Officers Liability policy specifically excludes coverage for the types of lawsuits  covered by a General Liability policy.

Claims Made Coverage Form Challenges

Directors & Officers Liability is written on a “claims made” form instead of an “occurrence” form. Under the claims made form, coverage problems can arise in the event that the policy is cancelled, non-renewed, or transferred to a new carrier. The insurance agent must provide guidance on how to handle these situations, including advice on retro dates, pending or prior dates, and extended reporting periods.

Non-profit vs. for profit organizations

Directors & Officers Liability policies for non-profit sports organizations are relatively inexpensive and typically include broad coverage terms. Minimum premiums may start out at $300 for smaller local organizations and $1500 for larger associations or sanctioning bodies. Of course, pricing will increase with higher revenues, weak financial statements, high-risk nature of operations, if members are to be included under a group program, or if there is a past history of losses. On the other hand, the premiums for profit sports organizations tend to be more expensive with less favorable coverage terms.

Favorable D&O coverage provisions:
  • The insurance carrier must “Pay On Behalf Of” instead of “Indemnify”.
  • Broad definition of “Wrongful Act” as “any” error, misstatement, misleading statement, act, omission, neglect, breach of duty, etc. instead of “negligent” error, misstatement….
  • Defense is included outside of the limits of coverage
  • Broad definition of insured persons to include the entity and its directors, officers, trustees, managers, employees, volunteers, committee persons, etc.
  • Addition of coverage for “personal injury wrongful act” and “publishers wrongful act”.
  • Loss prevention and consultation services.
Common D&O policy exclusions:
  • Deliberately fraudulent act or willful violation of statute or regulation
  • The gaining of any in fact profit or advantage to which the insured person was not legally entitled
  • Any wrongful acts that occurred prior to any “retro date” or “pending or prior date”
  • Prior claims subject to any notice given in any application for coverage
  • Violation of certain securities laws such as Securities Act of 1933
  • Bodily injury or property damage (should be covered under General Liability)
  • Release of pollutants
  • ERISA violations (should be covered under Fiduciary Liability)
  • Employment related wrongful acts (should be covered under Employment Practices Liability)
  • Punitive or treble damages exclusions
  • Insured vs. Insured exclusions are common to provide a disincentive for internal lawsuits between insured persons. Some insurance carriers will eliminate or modify this exclusion.
  • Breach of contract (should try to negotiate removal of exclusion or defense only)
  • Liability assumed under contract
  • Claims arising from serving on board of any outside entities
  • Non-monetary damages such as injunctive relief
Problem D&O exclusions for sports organizations to avoid:
  • Breach Of Contract:: If this exclusion is on the policy, attempt to remove it or amend it so that it does not apply to legal defense for breach of contract. Some lawsuits filed against sports organizations for failure to follow their own rules or bylaws are framed as breach of contract with members.
  • Antitrust Or Restraint Of Trade: This type of litigation occurs in the sports context when a sports organization implements rules that inhibit participation in other sports organizations.
  • Certification, Accreditation, and Peer Review: Many sports organization have training programs where coaches, umpires, or instructors are certified or accredited. Even if this exclusion is not on the policy, a strong argument could be made for a Professional Liability policy to cover this exposure.
  • Non-Monetary Relief or Injunctive Relief Claims: If this exclusion is on the policy, an attempt should be made to amend it so that coverage applies for legal defense. Many lawsuits arise in the sports context when a player is disqualified from participation in a tournament and such player files an action with a judge for injunctive relief to have the tournament postponed until a determination can be made.

Directors & Officers Liability Insurance can include coverage for Employment Practices Liability (EPLI) or EPLI can purchased as a separate component coverage depending on how the policy form is written. EPLI will be discussed in a subsequent blog.

Sadler Sports & Recreation Insurance provides an existing D&O program for local community based sports and recreation organizations for as little as $300 and we can customize a policy for sanctioning/governing associations which will of course be more expensive.