Confidential

Facts

Plaintiff Ben McDonald, a former Baltimore Orioles and Milwaukee Brewers pitcher, purchased total and permanent disability insurance from defendant Lloyd's of London to protect him in the event of a career-ending injury. He was continuously insured from the beginning of 1991 through February 1998. The plaintiff paid $58,000 in premiums for the 1997 policy. In July 1997, the plaintiff suffered a rotator cuff injury to his pitching shoulder. He underwent three shoulder surgeries, but the injury proved permanently disabling. In March 1998, he submitted a claim to the defendant. After a three-year investigation, the defendant declined to pay the claim and voided the policy because the plaintiff did not inform it of a doctor's visit prior to the 1997 season, which it alleged constituted a material misrepresentation.

PLAINTIFF CONTENTIONS:
The plaintiff contended that the rotator cuff tear that occurred during the 1997 season was the type of sudden event for which the policy afforded coverage and that notice of the claim was timely. The plaintiff also contended that his failure to inform the insurer about a doctor's visit in 1997 did not constitute a material misrepresentation. The defendant extensively evaluated his shoulder each year that he sought a policy and was aware of the health of his shoulder. Further, the defendant's authorized underwriting agent underwrote a second policy for a different insurance company, based on identical underwriting standards and guidelines as the defendant's. The underwriting agent found that there was nothing about the plaintiff's shoulder that would warrant the policy being declined. When the plaintiff became disabled, the other insurer paid the Milwaukee Brewers' claim in full. The plaintiff also contended that the defendant waived any right it had to rescind the policy because of its actual knowledge prior to the policy being issued, of all of the facts that it based its rescission. DEFENDANT

The plaintiff contended that the rotator cuff tear that occurred during the 1997 season was the type of sudden event for which the policy afforded coverage and that notice of the claim was timely. The plaintiff also contended that his failure to inform the insurer about a doctor's visit in 1997 did not constitute a material misrepresentation. The defendant extensively evaluated his shoulder each year that he sought a policy and was aware of the health of his shoulder. Further, the defendant's authorized underwriting agent underwrote a second policy for a different insurance company, based on identical underwriting standards and guidelines as the defendant's. The underwriting agent found that there was nothing about the plaintiff's shoulder that would warrant the policy being declined. When the plaintiff became disabled, the other insurer paid the Milwaukee Brewers' claim in full. The plaintiff also contended that the defendant waived any right it had to rescind the policy because of its actual knowledge prior to the policy being issued, of all of the facts that it based its rescission. DEFENDANT CONTENTIONS:
The defendant contended that the plaintiff's failure to inform it of a doctor's visit prior to the start of the 1997 season constituted a material misrepresentation and, thus, it was permitted to void the policy. The defendant also asserted that even if the rescission was not proper, the claims were not covered because it resulted from a preexisting condition -- a rotator cuff tear in 1995, which was a wear and tear type of condition the policy does not cover. The defendant also claimed that the notice of the claim was late.

Damages

The plaintiff claimed contract benefits of $3 million; prejudgment interest under Louisiana law of $1,342,000; and statutory penalties under Louisiana law of up to two times the contractual benefits.

Result

The parties settled for $5,750,000.

Other Information

The parties settled five days before the scheduled trial date, following a ruling by the trial judge denying the defendant's motion that the penalty statute did not apply to the type of insurance policy at issue in the case.