It Takes Deep Pockets to Play in This Risky Insurance Game : Sports: Writing disability coverage for pro athletes isn’t for wimps. Profits are on the line every time a highly paid star is tackled or hit.

Watching a pro football game on TV at his suburban Boston home one Sunday, Edward A. Dipple saw Jim Kelly, the Buffalo Bills’ star quarterback, come under a furious rush from opposing linemen.

“Somebody rolled over his leg and bent it up a bit,” Dipple recalled. “I went to the kitchen and made a cup of coffee. I didn’t want to watch it.”

Ted Dipple is one of those fans who loves football but abhors violence, particularly when it is done to a client such as Kelly, whom Dipple has insured for $10 million.

He knows firsthand that writing disability insurance for pro athletes in an era of steep salary inflation can be as dangerous as a naked reverse.

In a business where a player such as Kelly can obtain $10 million in coverage, a single claim can instantly turn a profitable year into a disaster. And with the universe of big-league athletes stable and salaries rising, it is harder and harder for an underwriter to spread the risk and turn a profit.

“The class is too small and the coverage too large,” Dipple said.

It takes deep pockets to play, and that’s why only two main insurers are in the game: Chubb Custom Insurance, for which Dipple’s American Specialty Underwriters is exclusive agent, and Lloyd’s of London, whose leading agency for U.S. sports is Pro Financial Services of Schaumburg, Ill.

With annual premiums of $20 million, American Specialty, of Woburn, Mass., writes half of the sports disability business in the country, with Pro Financial in solid second place. Dipple said that with the exception of two years in the mid-1980s, the business has been profitable. Because the whole U.S. market is only about $40 million, it is, of course, just a small segment in the overall disability insurance industry.

In team sports, there are two kinds of disability insurance. Teams buy policies to protect themselves against having to pay the salary of a hurt player. Such policies also can help compensate for lost ticket revenue when injury takes a star out of the lineup. Team policies tend to have large deductibles and in some respects resemble health insurance policies.

The other kind of policy is individual, which players buy to cover career-ending injuries.

The multi-year, guaranteed contracts that are the norm in baseball and basketball are insurance enough for many athletes in those sports; if a player gets hurt in the first game of a three-year deal, he still gets paid for the full three years.

In football, such guarantees are rare. Kelly has a six-year contract, guaranteed for “injury and skill,” said his agent, Roger Trevino. That means Kelly collects full pay even if he’s too hurt to play quarterback in the NFL again or his ability erodes to the point where his team drops him and nobody else hires him.

Troy Aikman of the Dallas Cowboys, Jeff George of the Indianapolis Colts, Dan Marino of the Miami Dolphins and Warren Moon of the Houston Oilers are other NFL quarterbacks with similar guaranteed “no-cut” contracts.

But only a handful of NFL players can command such deals. Michael Duberstein, research director for the NFL Players Assn. in Washington, estimates that of the league’s 1,400 players, fewer than 20 have multi-year, guaranteed contracts.

Nearly all the rest have contracts that guarantee the current year’s pay but provide a maximum of only $65,000 in the second year if a player is too injured to return. The National Football League average salary has more than doubled since 1985, to $430,000 a year today.

For football players, annual premiums for career-ending injury coverage can range from 1% to 10% of the coverage amount, depending on age and other factors.

According to a brochure for Lloyd’s coverage offered through the NFL Players Assn., a 33-year-old player would pay $18,720 for a $400,000 policy; the same coverage would cost a 22-year-old only $4,200. Punters and place-kickers, whose jobs are considered safer, pay only half as much.

Many young players are considered to have a certain value greater than that of their contract. For example, a rookie who signs a three-year contract at $350,000 a year can be expected to get a lot more in a later deal if he lives up to his potential. An insurer may write him a policy protecting that future value.

“For an older player, we might only do 60% of the non-guaranteed portion of his contract,” said Dennis J. Burns, president of Pro Financial Services, the Lloyd’s agency. “For a younger player, we could do more than 100%.”

The trick in writing such policies is to avoid creating what insurers call “moral exposure”--a situation where it’s worth more to a player to be injured than healthy.

Some might regard Kelly’s policy as a moral risk, because he stands to collect $10 million over and above his guaranteed salary if injury knocks him out. But Dipple said that in writing the policy he took into consideration Kelly’s motivation and his resistence to injury.

Insurers also try to avoid obvious risks. An older quarterback such as San Francisco 49ers’ star Joe Montana (now sidelined with an elbow injury) might be unable to obtain a career-ending injury policy, or if he could get one, it would be littered with exclusions for body parts that had previously been injured. For many older players, back injuries are excluded from coverage as a matter of course.

Career-ending injury policies don’t pay off until at least a year after an injury and only then after an insurance company doctor has certified that the damage will keep the player from returning to the sport.

Such certifications aren’t foolproof.

The biggest individual insurance payoff in team sports history--more than $4 million--was on a career-ending injury policy for a player whose career hasn’t ended yet.

Running back Marcus Dupree hurt his knee badly in 1986 while playing in the defunct U.S. Football League. Lloyd’s wrote the check, but nearly five years later, Dupree made a comeback and joined the Los Angeles Rams.

“Somebody got that one wrong,” said Dipple, an Englishman who used to work for Lloyd’s until founding his own competing agency 10 years ago.

Burns, whose company wrote the Dupree policy for Lloyd’s, said there was a strong medical consensus that Dupree would never play again. He also said the case provides a rejoinder to those who criticize Lloyd’s for being slow to pay claims.

Disputes between insurer and client may go to arbitration, where the athlete may introduce his own medical experts.

Some disputes go to court. Former Seattle Seahawks linebacker Brian Bosworth, out of football with a shoulder injury, recently sued both the team and Lloyd’s for allegedly failing to pay his claim. Bosworth reportedly has two policies totaling $5.1 million. Burns would not comment on that case.

Other players whose policies paid more than $1 million include running back Billy Sims, basketball player Bill Walton, baseball shortstop Rick Burleson, relief pitcher Bruce Sutter and quarterbacks Joe Theismann and Bert Jones.

Another huge potential claim is that of two-sport celebrity Bo Jackson, who suffered a hip injury playing football last year. Jackson returned to baseball this season, hitting several clutch home runs for the Chicago White Sox, but he was unable to run well.

He reportedly holds a $4-million policy that pays off if he is unable to return to football. The key is his ability to pass a physical to rejoin the Los Angeles Raiders.

Of course, passing an NFL physical doesn’t necessarily meet everybody’s definition of healthy.

“If a team wants a player to play, they’ll find a way to pass him on the physical,” said Leigh Steinberg, the Newport Beach lawyer who some consider the dean of football agents.

“There are no uninjured football players,” he added. “The typical player has back problems and knee problems, or he can’t pick up his kids and play with them, or he has trouble gardening.”

At the outset of the Persian Gulf War last winter, Steinberg made inquiries on behalf of a few nervous NFL clients and was told there was little likelihood that any would be drafted into the armed services because so few could pass an induction physical.

Career-ending injury insurance can provide “tremendous peace of mind” to an athlete, Steinberg said, but players should be aware of how limited the coverage is.

“Over 17 years, I might have had 150 players who had policies; one collected,” he said. “A player can’t buy insurance covering the injury that causes him to be drafted in the seventh round with a $20,000 bonus instead of the first round with a $3-million bonus.”

There are limitations on coverage, Burns acknowledged, but he added that insurers are sometimes criticized unfairly. For instance, he said Lloyd’s once wrote a blanket policy for college players in a particular bowl game. The coverage specified that claims would be paid only in the event that an injury permanently disabled an athlete from participation in any occupation .

Sure enough, a player was hurt badly enough to rule out a football career, although it was doubtful whether he could have made the NFL in any event, Burns said. When the game’s organizers threatened to publicly accuse the insurer of cheating a college kid out of his claim on a technicality, Lloyd’s made a cash settlement.

Dipple went to the sidelines for more than a year in the mid-1980s after American Specialty suffered a string of bad losses. He stopped writing football policies for about a year while he tried to figure out what had gone wrong.

Finally, he concluded that he’d been mistaken to believe that artificial turf would live up to its initial promise to reduce football injuries; in fact, the opposite occurred. Another blow was the demise of the U.S. Football League. With scores of players suddenly out of work, “we picked up a lot of claims that were . . . somewhat iffy,” Dipple said.

He got back into the business after deciding to limit his football coverage to the best-paid players.

“Ted’s a cherry picker,” said Burns, his rival, who insures about 400 NFL players, more than anyone else.

“If we limit ourselves to the top 25% of the football population, then we have a much better chance of writing somewhat profitably,” Dipple said. The new philosophy has been profitable, he said, “but not by much.”

And there are always linebackers out there hoping to level Jim Kelly. “He tears his knee up and can’t come back--that’s a $10-million loss and that’ll change our figures overnight,” Dipple said.