Insuring Prince Fielder

On Tuesday, we learned that Prince Fielder’s career has come to an end following his second major neck surgery in just the last three years. Jeff Sullivan provided a fitting eulogy for Fielder’s career a couple days ago. While the news is certainly devastating for Fielder on a personal level, this post concerns another matter — namely, the potential financial implications of Fielder’s injury, both for the Texas Rangers and Fielder himself. At the heart of the matter: the nine-year, $214 million contract Fielder signed in 2012, a deal that guarantees him another $24 million annually from 2017 through 2020.

For starters, it’s important to note that Fielder is not officially retiring from baseball, but rather has been declared medically disabled and therefore is no longer considered to be physically able to play the game. This is an important distinction legally, because had Fielder voluntarily decided to retire, then he would have forfeited the roughly $104 million remaining on his contract. Instead, by being declared medically unable to play, Fielder remains entitled to the full amount he’s owed under his contract.

Because Texas reportedly has an insurance policy covering his contract in the event of injury, the Rangers will not be on the hook for the entirety of the team’s remaining financial obligation to Fielder. Instead, the club will apparently only be responsible for paying Fielder $9 million per year from 2017 to 2020, with the rest of his salary covered by the team’s insurer (who will reportedly contribute another $9 million per year) and the Detroit Tigers (who are on the hook for the final $6 million per season, based on the terms of the trade that brought Fielder to Texas in exchange for Ian Kinsler in 2013).

That having been said, although the precise terms of the Rangers’ insurance policy are not publicly available, it appears likely that this $9 million in cost savings will not come without some strings attached for the club. Moreover, it’s also possible that the team’s insurance company could still yet find a way to avoid paying some or all of its share of Fielder’s contract.

To begin, not all player contracts are insured, and not all insurance policies are the same. Unlike the National Basketball Association and National Hockey League, which have established their own league-wide insurance policies for player contracts, MLB teams decide for themselves (i) whether to insure a particular player’s contract, (ii) with whom to insure it, and (iii) what level of coverage they wish to receive.

The Boston Red Sox, for example, typically do not purchase insurance covering their players’ contracts in case of injury, a policy that came back to bite the team earlier this year when it was announced that Pablo Sandoval would miss the entire season with a torn labrum, leaving the club on the hook for all of Sandoval’s $17 million salary in 2016.

Even for those teams that do opt to take out insurance on some of their players’ contracts, however, the terms of these policies can differ considerably. Some insurance policies, for instance, cover up to 80% of a player’s salary in case of injury. Others, like the policy apparently covering Fielder, only provide the team with 50% of the player’s salary. Similarly, some insurance policies only kick in when a player misses an entire season, while others go into effect once an injury sidelines a player for 90 or more days.

One term that is apparently pretty standard in these agreements, however, is a requirement that the team must place the injured player on the disabled list — rather than simply release him outright — in order to collect the insurance proceeds. It’s not entirely clear why insurance companies typically insist on such a provision, although it’s possible they view it as protection against teams fabricating injuries for aging players with whom they have simply decided to cut their ties for performance-related reasons.

This means that, in order for Texas to collect its $9 million in annual insurance proceeds, the Rangers will likely be required to keep Fielder on the 60-day disabled list for each of the next four years. While this will have little competitive impact on the club during the playing season, it’s not without its cost to the team, as it means that Fielder will have to remain on Texas’s 40-man roster throughout each of the next four offseasons.

Specifically, under Major League Rule 2, teams must place anyone who is signed to a major-league contract for the following season on their 40-man roster by November 20th of each year. This includes players on the 60-day disabled list, who must be added back to the 40-man roster within five days of the final game of the World Series. Injured players cannot be re-assigned to the 60-day disabled list — and thus once again be effectively removed from the 40-man roster — until 45 days before the start of the next year’s regular season.

As a result, this means that, in order to receive its insurance money, Texas will likely have to keep Fielder on its 40-man roster from November through February for each of the next four offseasons. Thus, the team will, in effect, only be able to maintain a 39-man roster each of these offseasons, potentially limiting the team’s ability to protect an additional up-and-coming prospect each year.

While that development is unfortunate for the Rangers, in another respect the team may have been quite lucky that Fielder’s career-ending injury occurred when it did. In recent years, insurance companies have reportedly become reluctant to insure player contracts for more than three years at a time. This means that teams usually must renegotiate a new policy every two to three years for each player contract they wish to protect with an insurance policy.

At the same time, insurers are understandably often quite hesitant to provide coverage for pre-existing injuries. Instead, insurance policies will frequently exclude from coverage future ailments to any area of the body in which a player has previously sustained a serious injury.

Because the Rangers acquired Fielder from Detroit in November 2013, it would appear likely that the team’s insurance coverage was due to be renegotiated this upcoming offseason. And because Fielder had undergone season-ending neck surgery in 2014, insurance companies may have resisted an agreement to cover any future neck-related injuries Fielder may have sustained.

This means that, had Fielder reinjured his neck next year, rather than this year, the Rangers may very well have found themselves without any insurance coverage for the remainder of his contract. In that case, the team would have been on the hook for the full $18 million it owed Fielder annually through the 2020 season. So from Texas’s perspective, if Fielder were going to suffer a career-ending neck injury, it may have been quite fortuitous that it occurred now, rather than a future season.

Finally, it’s important to note that, just because the Rangers have announced that Fielder is medically unable to play, the team’s insurance provider may not necessarily agree. Indeed, it’s entirely plausible that the Rangers’ insurer will contest the team’s claim, thereby allowing it to delay — and potentially entirely avoid — paying the team under the policy.

Specifically, it’s not clear yet which doctors have declared Fielder physically unable to play. Assuming that the Rangers’ insurance policy grants the insurer the right to have such a determination made by an outside physician, and assuming that such an outside examination has not yet occurred, then it’s possible that the insurer’s preferred doctor may yet reach a different conclusion regarding Fielder’s physical state. In that case, the insurance company could argue that Fielder has not, in fact, been permanently rendered physically unable to play, and thus that the Rangers are not entitled to compensation under the insurance policy.

Alternatively, even if the parties all agree that Fielder is currently sufficiently disabled to trigger the insurance coverage, it’s possible that the policy requires that Fielder be reexamined every year in order to determine whether he still remains physically unable to play. In that case, it theoretically might be possible that, at some point down the road, Fielder will have sufficiently recovered to the point that he could be medically cleared to play, in which case the insurer would no longer be obligated to pay the Rangers. Should that happen, Texas would then once again be responsible for its full share of Fielder’s remaining contract, even if his skills had eroded to the point that he was no longer a viable major-league player.

So even though initial reports suggest that Texas’s insurance policy covers the last four years of Fielder’s contract, it may be too early to tell for sure whether the team’s insurer will agree.