The 2007 injury that ended Juan Encarnacion‘s career was one of those slow-motion nightmares you hate to see, on a baseball diamond or anywhere else.

The St. Louis outfielder was struck in the left eye by a foul ball as he stood in the on-deck circle, preparing for an appearance as a pinch hitter. He immediately crumbled to the ground but maintained consciousness as teammates and medical personnel rushed to help him. Encarnacion sustained multiple fractures of his left eye socket, damage so severe that Cardinals medical director Dr. George Paletta characterized it as the worst he had ever seen to a baseball player.

Encarnacion has not played since. Now 34, he lives in the Dominican Republic, his baseball career apparently over. The Cardinals were left to grapple with the loss of a teammate and the memory of the traumatic incident. The St. Louis front office faced another issue: A year still remained on Encarnacion’s contract, guaranteeing him $6.5 million in 2008-a detail far less important than his recovery, but an expensive matter nonetheless.

Fortunately, the Cardinals were covered, at least partially. An insurance policy indemnified the club for a portion of Encarnacion’s 2008 salary. Like most clubs, St. Louis did not divulge the financial details, though that didn’t stop fans from assuming the Cardinals had an extra $6.5 million to spend on 2008 payroll. But that wasn’t necessarily the case. The club reportedly operated on the assumption that because insurance premiums were not included in payroll, any money recovered should not necessarily be used to enhance spending for players.

Disability insurance is one of the darker corners of club finances, an area team executives do not generally discuss in detail. The cost of insurance for clubs spiked in 2001 after Baltimore recovered $27 million for its claim on the contract of slugger Albert Belle, whose career ended prematurely because of a hip injury. But after a decade of turbulence in the insurance industry, disability policies are more expensive and more limited in scope than ever. Because most contracts are guaranteed, clubs view the cost of insurance as a cost of doing business and a way to spread risk. However, some clubs have opted out of the system altogether, choosing to self-insure, or set aside money to meet losses rather than purchasing insurance.

That makes baseball unique among the major team sports. Though salaries for NFL players are not guaranteed, the league’s labor deal has provided disability benefits, financed by team owners, since 1982. However, many NFL teams also use disability insurance to cover the cost of signing bonuses, which are guaranteed. The NBA’s labor contract requires each team to provide disability insurance for its top six players, and the NHL owners must insure the top five players on each roster. A club may provide coverage for additional players if it chooses.

Though Major League Baseball might not be as violent as football, the season is longer, as are many of the contracts. So it is rare that any insurance policy covers the full salary of an injured player. Coverage paying 50 or 75 percent of the salary is more common. And a stint on the 15-day disabled list won’t result in any financial help for a club because policies generally require a player to spend 45-90 days on the DL for coverage to apply. So the team is left to cover the cost of an injured player’s salary for the first several weeks of down time.

The cost of premiums paid by the clubs can vary, depending on the team’s deductible and how comprehensive the coverage is. A premium can be as expensive as 10 percent of a contract’s average annual value, with policies usually covering three-year intervals and renewable beyond that. Pitchers and their fragile arms are more expensive to insure than position players, and an insurance company might choose to exclude from coverage a specific body part-say, a closer’s elbow-depending on his injury history.

All of this is one more factor to consider when making a multi-million-dollar, long-term offer to a player. Boston general manager Theo Epstein conceded as much this spring when he announced the signing of right-handed ace Josh Beckett to a four-year extension and said, “We had outstanding health reports. All the testing now is better than it’s ever been, and the commitment we made demonstrates that. We put our money where our mouth is. He’s a guy who is insurable, he’s a guy that we count on to be as healthy as he’s been.” Beckett, out since May 18 with back problems, made a rehab start Sunday with Triple-A Pawtucket  and hopes to be activated from the 15-day disabled list sometime after the All-Star break. Obviously, no risk-avoidance strategy is perfect.

The Cardinals faced another insurance challenge in January when they signed left fielder Matt Holliday to a $120 million contract, the richest in franchise history. St. Louis reportedly obtained coverage on Holliday’s deal at a price of about $2 million in premiums in each of the first few years of the deal. And the Cardinals are likely to go through the same process next offseason as they begin negotiating with first baseman Albert Pujols on a new long-term deal. Should Pujols command an average salary rivaling that of Alex Rodriguez, the risk will be significant. When ARod signed his 10-year, $252 million contract with Texas in December, 2000, the Rangers paid $9 million in premiums for coverage of the first five years-and were able to insure less than half the deal’s value.

Even with an insurance policy, the risk doesn’t end with finding a carrier to write a policy or paying the premium. As anyone who has filed a claim on a homeowner’s or auto policy will tell you, the claim process can have twists and turns of its own. The Atlanta Braves found out firsthand in 2008, when Hartford Life denied the club’s $4.82 million claim on a policy covering left-hander Mike Hampton, forcing the club to sue for payment. The club had received payments covering Hampton’s 2006 and 2007 salaries under the Hartford policy issued to the Colorado Rockies in 2000 and assigned to Atlanta after he was traded to the Braves. Though Hampton had missed the entire 2006 and 2007 seasons, he pitched in 13 games in 2008, and Hartford Life argued that the pitcher was not “totally disabled,” as required for payment under the terms of the policy. The two sides settled the lawsuit for an undisclosed amount in 2009. The Astros settled a similar lawsuit with insurer Connecticut General when the company denied Houston’s claim to recoup $15.6 million of Jeff Bagwell‘s $17 million salary for 2006. That case also was settled after a dispute of several months.

So even when a club insures a contract, it is likely the coverage is not comprehensive and any claim will take some time. And so if, for example, your team’s closer is out for the season and the contract is covered by an insurance policy (I’m looking at you, Twins fans), it’s no sure bet that your GM will be spending 100 percent of his salary on a replacement.

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Excellent Jeff. This is a tricky subject, and you have covered the overall issue well. Can you devote some time to the issue overall, like when a player goes all Kevin Brown with a water cooler? Are some of the weirder-sounding off-site (i.e., away from the ballpark) or out of season injuries the subject of lawsuits? Where might we find additional info? Great job. Regards,
So deferring $2 million each year on Holliday's deal was really a way for the Cardinals to buy insurance on the deal?