Catastrophe Accident Insurance

Catastrophe/Cash Accident insurance first became popular in the 1980s as a tool to deter lawsuits arising from player injuries. During this period. which is often referred to as the “liability crunch.” schools often had trouble finding General Liability insurance that would cover athletic participant injuries. Catastrophe/Cash Accident policies evolved to provide significant benefits to injured athletes and their families in an effort to deter litigation. Athletes suffering severe brain injury or paralysis often resulted in crushing medical bills, ongoing family care, extensive rehabilitation, home modifications, and loss of future income on the part of the athlete.

Many state high school athletic associations recognized the need for Catastrophe/Cash Accident insurance and wanted to provide this as a benefit to their member schools. Therefore, most state high school associations took over the function of providing this coverage and negotiated high limit catastrophe coverage at the lowest possible cost. The coverage could still be purchased at the school or school district level, but they often did not have the same buying power to negotiate the best prices and sometimes did not understand the need for the coverage.

The liability crunch is now over and schools can easily find General Liability insurance to cover athletic injuries. However, the need for Catastrophe/Cash Accident insurance still exists as it can still deter litigation and helps to protect the General Liability loss record of the school or school district. Furthermore, it is the right thing to do to make sure that injured athletes and their families are protected.

Many schools and school districts purchase Base Plan Accident insurance on a compulsory (mandatory participation) basis on all athletes. These base plan policies usually pay for covered medical bills on an excess basis up to a limit of $25,000. The reason the limit often goes no higher than $25,000 is so that it can dovetail with a Catastrophe Accident plan so that there is no duplication of benefits or wasted premium dollars.

Compulsory Base Plan Accident policies that are typically written on an excess basis. This means that any existing family health insurance, if any, must first respond before any benefits will be payable. If there is no existing family insurance, the Base Accident plan becomes primary and pays for covered benefits subject to any deductible, coinsurance, or other internal payout limitations. If family health insurance is in force but does not pay all bills due to its own deductible or coinsurance, the Base Accident plan steps in to pay for remaining bills subject to its deductible, coinsurance, or any other internal payout limitations. This is the type of Base Accident plan that we recommend at Sadler Sports Insurance.

Some schools or school districts don’t provide compulsory Base Plan Accident insurance on all athletes and instead allow each athlete/parent to participate in a voluntary participation Base Accident plan on a case-by-case basis. Such plans usually provide primary coverage, but most have so many internal payout limitations that the claimant is lucky to collect on 50% of the medical bills. The insurance carriers know that most athletes/parents who purchase this insurance have no existing family health insurance and will be hit hard in the event of a claim. That is why the carriers load these voluntary participation plans with so many internal payout limitations. We don’t recommend this type of insurance due to the frustration that is often experienced on the part of the parents when they receive benefits that only cover a small percentage of total bills.

Catastrophe Accident insurance is an excess insurance policy with a large deductible, such as $25,000, that was designed to dovetail with any Base Accident plan which may be in force at the school or school district level. A true Catastrophe plan has a coverage limit of at least $5,000,000, though some plans are available with limits as low as $1,000,000. Coverage is excess so that the cost can be minimized by requiring any existing family health insurance to respond first. However, to the extent that there is no existing family health insurance or that such insurance does not cover all the bills, the Catastrophe Accident policy will respond to pay covered claims.

Catastrophe Cash Insurance/Special Benefits is triggered by certain severe injuries such as coma, brain death, traumatic brain deficit, and varying degrees of paralysis such as quadriplegia, paraplegia, hemiplegia, and uniplegia. Once the triggering event continues for a certain period of time and is likely to be permanent as verified by a medical doctor, the carrier will pay these cash benefits. Some Catastrophe Cash policies pay a certain initial lump sum followed by monthly payouts for a period of time such as five years. These plans allow the family to have total flexibility to decide how to use the proceeds. However, other plan designs have a number of benefit categories with sublimits such as disability payments, adjustment expense for family member training, special expense for home modification, and college education. These plans don’t allow for the same flexibility, but do make it more difficult for parents to squander the proceeds on purchases that don’t benefit the injured athlete.

Accidental Death & Dismemberment is another benefit which is payable by these plans. Most plans pay a lump sum benefit for Accidental Death and other lump sum limits for varying degrees of loss of use of limbs, hands, fingers, sight, hearing, etc.

Comparing one policy form to another is so confusing because none are standardized as is the case with many other policy types. Each Catastrophe/Cash Accident policy form is unique to the carrier and each carrier uses its own descriptive terms. Therefore, it can be very frustrating even for insurance agents to understand the differences and how they may impact claim scenarios.

At Sadler Sports Insurance, we have developed custom coverage comparison spreadsheets to assist us and our clients in making decisions that best benefit the injured athletes and their families.