Soriano’s Contract: Disability Insurance

It makes sense for Major League Baseball teams, when handing out large multiyeared contracts that are “guaranteed,” to have an insurance policy to lessen the loss to the organization should the player suffer a career ending inury or be otherwise physically unable to play for the team. 

Given Alfonso Soriano’s contract, I thought I’d be interesting to take a look and see if the Cubs might be eligible to collect insurance on Soriano’s contract.  A certain individual, [named redacted], from [blog name redacted], has suggested continously that the Cubs might be able to use insurance on Soriano.  If they could, the story goes, it would greatly reduce the cost of releasing Soriano and save the franchise a lot of headaches in the years ahead.  Let’s take a look. 

First of all, It’s worthy to note that MLB contracts are guaranteed- the player is guaranteed to receive the full amount of money for the full number of years he is signed to, provided he doesn’t breach the contract.  Generally, these contracts are stacked in favor of the player, even when it comes to off-the-field injuries.  The exception is the hazardous activities clause written into MLB contracts, which allows the team to void the player’s contract should they engage in dangerous activities and become injured.  On the field injuries that end careers, are more common, however.  In this case, MLB teams have little choice but to pay out the contract to the player.  It is for this reason that MLB teams often purchase disability insurance for their players.

Major League Baseball does not have its own disability insurance program.  Instead, teams looking for insurance contract out as needed.  Perhaps a bit confusingly, contracts as a whole are not insured.  Policies are generally agreed upon for two or three years at a time, even if the length of the contract is longer.   This isn’t ideal for major league teams, particularly given the wealth of exceptionally long contracts signed in recent years, but it’s the maximum length insurance companies will agree to in order to protect their interests.  Who can blame them?  Contracts such as Soriano’s show why this is very smart thinking from the insurance companies.

Disability insurance generally is specified for players with career ending injruies.  However, if a player is out for two years due to Tommy John surgery or another injury that requires a long recovery time, teams can often collect temporary disability insurance.  Temporary disability insurance for MLB contracts is generally agreed upon with a 60 day, 90 day, or full season waiting period.  The player must be injured for the full length of the waiting period before the team can collect on the policy.  As with all insurance policies, the older or more injury prone the player, the more expensive the premium.  In 2002, the average premium for a MLB outfielder was $7.27 per $1000 insured.  Policies generally cover no more then 50-70% of the player’s contract, due to hesitance by the insurance companies to insure a higher percentage.

So, have the Cubs insured Alfonso Soriano’s policy? At what cost?  Unfortunately, these figures are not public, unlike salary or contract figures.  It would be very shortsighted of the Cubs not to have agreed on an insurance deal for Soriano, particularly given that much of his value was based on his speed, an ability that can decline rapidly.  However, given the incremental basis insurance policies are agreed upon, it’s likely the Cubs are on their second, or even possibly third policy on Soriano’s contract.  Given his injury problems and fragility, it’s likely that the current policy has a very high premium while actually covering very little of Soriano’s contract.  

None of this changes the fact that Soriano is not currently injured.  This means the Cubs are unfortunately on hold for the entire length, and amount of Soriano’s contract, regardless of his preformance, so long as he doesn’t breach his own contract.  Should Soriano suffer a temporary, or permanent career ending injury, it’s possible the Cubs may be able to collect on an insurance policy for Soriano’s contract.  however, they would have to prove that Soriano had really suffered a career ending injury, and not just a convienent phantom injury to opt out of his contract.  Even if they were able to do this, in all liklihood, the amount would probably be very small and rather insignificant, given the high amount of risk Soriano represents to potential insurers.
TL;DR: No