Alligators, Body Parts, Fantasy Leagues: All In A Day's Work For Specialty Writers

Whether it's insuring a 30-foot-tall lobster sculpture tourist attraction, a cattle stampede for a truck commercial, or former home run king Mark McGwire's bum ankle, the insurance industry has written specialty policies to cover many risks that fall well outside of the proverbial box.

Professionals from around the industry shared some of their latest war stories with National Underwriter, discussing scenarios involving strange exposures, eye-catching but potentially dangerous ad campaigns, and interesting strategies to resolve possibly explosive coverage issues.

For starters, take the case of “Betsy”–a 40-foot-long sculpture of a spiny lobster in the Florida Keys created in the 1980s by an artist in the area named Richard Blaze.

“The first I heard is one of my customers stated that he wants to insure his lobster for $250,000,” recalled Anthony Hazard, president of the Hazard Insurance Agency in Homestead, Fla. “So I called my underwriter [and asked], 'Can you insure a lobster [for 250 grand?'"

Betsy is located at mile marker 87 of Route U.S. 1 in Islamorada, Fla., in front of the Rain Barrel Artisan Village shopping complex. News reports explain Betsy was moved to this location recently after being in storage following the previous owner's death.

At one time, Betsy was cited by Kodak as the second-most photographed attraction in the Keys--with the southernmost point being the first.

GATORS GALORE!

Mike Powell, senior underwriter at Fairmont Specialty in Houston, a division of Crum & Forster, discussed a seemingly generic risk involving standard coverages for the First National Bank of Alvin, Texas.

But the bank had an interesting display to attract customers, causing Mr. Powell's then-employer to shed the workers' comp coverage. "When I was a new underwriter at Aetna Life & Casualty in Houston, we bound coverage for all lines, including workers' compensation, on this bank, subject to a favorable loss control report. When we got the report back, the diagram showed the lobby with a drawing of two alligators inside. The agent had not told us about this!"

After the initial shock of finding out about a live alligator display in the bank's lobby, Mr. Powell said, "our response was to have them place the workers' compensation coverage elsewhere, after we asked who fed the alligators and how."

Apparently, a bank custodian would enter the display and throw whole chickens in for the alligators to eat.

"We stayed on the other lines, but had to do a referral to our home office in Hartford, Conn., probably making some home office underwriter's day and reinforcing the stereotype of Texas as cowboy/frontier country," Mr. Powell said.

RISKY AUTO ADS

David Price, executive vice president and chief underwriting officer for Burns & Wilcox, talked about two unique risks associated with automobile advertising campaigns.

The first involved a GM advertisement in the United Kingdom. A car was suspended by a crane, he said, where it emerged from a space capsule, was lowered to the ground and then driven away. Coverage involved the "English version of general liability for injuries and property damage," Mr. Price said, noting he has some connections in the Lloyd's market, so finding interested underwriters was not an issue.

The second risk involved the same ad agency, but was done in the United States for Chrysler to display its Dodge Ram truck. In this ad, cows and wranglers were hired from Oklahoma, and a controlled stampede was staged in Detroit. The risk was placed with a domestic carrier this time, and the exposure was heavily underwritten to ensure adequate safety measures were in place.

Both the wranglers and the cows had done events like these previously in other locations, Mr. Price noted. "They were professionals," he said.

FANTASY FOOTBALL

Meanwhile, as many people prepare their fantasy football rosters in anticipation of the upcoming 2009 NFL season, they are likely dreading the prospect of an early-season injury sidelining their star player and thus ruining their fantasy season before it really even begins.

Proving that insurance really does touch all aspects of life, there is now coverage to protect fantasy football owners from exactly these types of season-ruining injuries.

Anthony Giaccone and Henry Olszewski--brokers at Intermarket Insurance Agency on Long Island, N.Y.--have developed "fantasy sports insurance," finding underwriters in several Lloyd's syndicates willing to write such risks.

Essentially, for around 10 percent of the total cost of fielding a fantasy team, an owner can insure any of the 50 eligible players, Mr. Giaccone, president of Intermarket, explained.

The owner can select a one-, two- or three-player option. If three players are out a total of 18 games, or two players are out a total of 14, or one player is out for eight or 10 games (there are two one-player options), the owner will be reimbursed for their entire entry fee.

Mr. Giaccone said now is an ideal time to start offering this coverage, considering the first-game, season-ending injury to star New England Patriots quarterback Tom Brady last year. In fact, he said, it was Mr. Olszewski bemoaning the loss of Mr. Brady from his fantasy roster and wondering aloud why there was not coverage for that sort of thing that prompted the idea for fantasy sports insurance in the first place.

As far as a market for the coverage, Mr. Giaccone said there are roughly 11 million fantasy football teams formed each year. He said hundreds of policies have already been sold, and the Web site--www.fantasysportsinsurance.com--is receiving 2,000 hits a day. All of this was before drafting had begun for the 2009 season.

While noting "football is the 800-pound gorilla" of fantasy sports, Mr. Giaccone said other sports may be included in the future, including hockey, basketball, baseball, and possibly even golf and NASCAR.

BODY PARTS

A smile may be worth a thousand words, but how does that translate to actual dollars? Jonathan Thomas, group accident health underwriter at Lloyd's Watkins syndicate, may have the answer as someone who has helped underwrite coverage for body parts.

This type of coverage, he explained, splits into three segments:

o The first involves someone insuring a physical attribute that drives earning power. For example, Mr. Thomas noted, a singer might insure their voice, a chef may insure their hands, a person whose job involves smelling perfume might insure their nose, etc.

For specific body parts--particularly with sensory talents--Mr. Thomas said it is common to subject the insured to medical exams to establish that they do not have any underlying conditions that may be unknown even to the insured. Exclusions for these policies typically include smoking or chewing tobacco.

o The second type of coverage involves sports stars. Sometimes disability insurance policies for athletes will contain partial exclusions relating to body parts that have caused past injuries. In these cases, the athlete, team or agent may want to buy out the exclusion.

In these cases, Mr. Thomas said, finding a carrier can be difficult. There are a fair number of underwriters who write sports disability insurance, he said, but far fewer "who have the expertise and appetite for tougher exclusions to body parts. Not a lot are comfortable covering that."

To write these kinds of policies, the exclusion language must essentially be inverted, Mr. Thomas said. Underwriters will typically apply "very broad exclusions" to the body part in question. When writing back the exclusion, Mr. Thomas said it is possible to continue to exclude some conditions considered impossible to insure while still giving back a lot of coverage.

These types of policies are not cheap, Mr. Thomas said. While noting that in many cases the initial exclusion is often "more broad than it needs to be," he said there is still a reason the exclusion was put in place, so it is costly to write coverage back.

In one interesting story about this type of policy, Mr. Thomas talked about insuring Mark McGwire's problematic ankle during the baseball player's epic 70-home-run season with the St. Louis Cardinals in 1998.

Mr. Thomas said a lot of medical details had to be vetted before Lloyd's underwriters would consider writing a policy. Details included exactly how the ankle is strapped, types of orthotics used and any anti-inflammatory medications taken.

One substance used by McGwire at the time--androstenedione--was part of the regiment that Lloyd's said should be maintained to help Mr. McGwire recover.

At the time, the substance was not on Major League Baseball's banned substance list for performance-enhancing drugs, but it has since been added and is considered a "steroid precursor." And so, as Mr. Thomas noted, "something that was the start of all the steroid [discussions in baseball] was part of the underwriting interest for this policy.”

o The third type of body parts coverage is primarily for the benefit of media exposure, Mr. Thomas said, explaining that celebrities sometimes like to say they have insured a part of their body. He added that he has never seen a payout for policies that fall into this category.

WATCH YOUR STEP!

Greg Schilz, managing director at Aon Environmental Services, discussed a risk involving an old army base that was set to be re-developed. The idea was to convert it into a mixed-use development, but the base, situated on 3,500 acres, contained exploded and unexploded ordinance.

Mr. Schilz said there was not coverage for the ordinance itself, but rather Aon developed a product to cover the cost overrun for cleaning up exploded or unexploded ordinance. He said it was cost-cap insurance–which is coverage that responds when costs run over for a cleanup project.

Mr. Schilz said cost-cap coverage had never been used in this way to address munitions exposures.

He said initially, no markets wanted to write the risk, and Aon ended up working with Chartis–then known as AIG–to educate the underwriters and get them comfortable with the exposures. He said Aon has gotten a positive reception from Chartis with respect to the company looking at similar risks in the future.

A separate, but equally unusual arrangement that Aon helped develop involved an asbestos settlement between a client, who was a manufacturer, and a prior general liability insurer.

As part of a multimillion-dollar settlement with the client, the general liability insurer sought a full hold harmless and indemnity agreement from the manufacturer, explained Howard M. Tollin, managing director of Aon's Environmental Services Group.

However, after reviewing the financials, Mr. Tollin said, the carrier was unsure whether the manufacturer was solvent enough to honor the agreement. The carrier felt it may be dragged into litigation in the manufacturer's place if the manufacturer became insolvent.

To solve the impasse, Mr. Tollin explained, “we negotiated an arrangement with another insurer to step into the shoes of the policyholder for a premium in the event the policyholder was unable to honor its obligation with the general liability insurer. This creative arrangement allowed the settlement to take place.”