Risk & Insurance: Riding on the edge: horse riders have been more concerned about insurance cove

Shane Sellers didn't want to play Russian roulette anymore.

A top jockey who rode in the Kentucky Derby 14 times and won more than 4,000 races during the course of his career, Sellers decided in October to stop riding until he could get better insurance coverage.

For years, he had purchased disability insurance for $10,000 a year. But after he seriously injured his knee in 2000, insurers would no longer cover him. He decided to fight his way back anyway and ride without disability insurance because he was just 200 wins away from the 4,000-win milestone.

"I rode in pain to get to that milestone," Sellers says. At the Kentucky Derby last year, he was on the favorite, The Cliffs Edge, who finished fifth.

But Sellers, 38, knew he ran the risk of serious injury every time he got on a horse; and he knew he was riding with virtually no safety net. The Jockeys' Guild had allowed its catastrophic injury policy to lapse after 2002, following a rapid increase in insurance premiums in the hard market. That left jockeys covered through policies obtained by the racetracks, but they only provided accident coverage of $100,000, a pittance for a seriously injured jockey. "I knew for a while that we were only covered for $100,000. I knew that," Sellers says. But he took the risk anyway.

The wakeup call came last July when jockey Gary, Birzer was paralyzed from the waist down after a spill at a racetrack in West Virginia. Birzer had only 8100,000 in accident insurance from the racetrack, but has so far reportedly racked up bills of more than $600,000.

Sellers recalls returning to Kentucky after a summer of riding in New York, where jockeys are covered by workers' compensation, and thinking about Birzer's accident.

"It was just a yew seary feeling to know that I could possibly lose every-thing I worked for for 26 years," he says. "When I came back to Kentucky after Saratoga, riding under those conditions, I felt very unsafe. I talked it over with my wife, and it wasn't something I wanted to risk. I didn't retire, I just stopped riding until we could get some better insurance. I just felt I didn't want to play Russian roulette with my future anymore."

Sellers wasn't the only one alarmed by the situation. Riders had been growing increasingly concerned about the insurance issue after a series of accidents that resulted in the death of jockey Michael Rowland and left jockeys Birzer, Remi Gunn and Tony D'Amico seriously injured.

In early November, tensions came to a head at Churchill Downs, Louisville, Ky. Sellers was led away from the track in handcuffs, a day after he had spoken to jockeys about the risks they faced by riding with inadequate insurance.

Though no charges were filed in the Sellers incident, later that week 14 jockeys declined to accept mounts at Churchill Downs. A walkout a few days later at Hoosier Park, Anderson, Ind., led to the cancellation of one night's races there.

MOST RIDERS CAN'T AFFORD COVERAGE

The jockey boycott, however, attracted a lot of attention. Kentucky Gov. Ernie Fletcher has made the issue of insurance for jockeys a top legislative priority for 2006 and appointed a blue ribbon panel to study the problem. The governor expects a report from the panel by September 1.

The Lexington Herald-Leader, one of Kentucky's major daily newspapers, also kept the issue on the front burner when it ran a series of articles in January and February on the issue of adequate insurance coverage.

In addition to the developments in Kentucky, the National Thoroughbred Racing Association formed the Jockey Accident Insurance Working Group in November. The working group announced its conclusions in April.

A U.S. House subcommittee is investigating the Jockeys' Guild because of serious questions about why the Guild allowed its policy, which covered claims up to $1 million, to lapse in 2002, according to an Associated Press report.

For the jockeys, though, a solution might have to be developed on a state-by-state basis since workers' comp is regulated at a state level and thoroughbred horse racing does not have a national governing body. "That's one of the difficulties jockeys have faced," says Erie Banks, a spokesman for the Jockeys' Guild. "It is a nationwide problem, but it's state-by-state and then racetrack by racetrack. We don't have a national governing body that would take care of this."

Of the more than 30 states that have pari-mutuel racing, only a few provide workers' comp for jockeys. New York, New Jersey, California and Maryland are the key states that have major thoroughbred racing operations and also provide workers' comp for jockeys.

As employers, trainers are required by law to have workers' comp for their employees. Jockeys, however, are considered independent contractors because they ride for multiple trainers on any given day. According to the regulations in most states, that makes them ineligible for workers' comp.

Jockeys riding in states without workers' compensation now have just two options. They can buy their own disability insurance, or they can rely on the coverage provided by the racetracks.

Most jockeys, however, cannot afford to buy their own disability insurance. "There are 1,500 licensed riders and the top 10 percent make a good living," Sellers says. "The rest make an average of $35,000 a year." At $10,000 a year, disability insurance is simply out of reach for the average jockey, he says.

Some tracks have since increased their on-track accident insurance coverage. Churchill Downs Inc. has said it was raising its coverage from $100,000 to $1 million. Gulfstream Park, Hallandale Beach, Fla., which is owned by Magna Entertainment, increased coverage to $500,000.

In Kentucky, the goal is to find a solution that will protect both the jockeys and the exercise riders, says Tom Ludt, who is a member of the Kentucky Horse Racing Authority and a broker at BB&T-Cromwell.

While jockeys have been the focus of the insurance crisis, there is also concern that other workers, such as exercise riders, hotwalkers and grooms, may be falling through the cracks as well.

The Lexington Herald-Leader found that only one-third of trainers in Kentucky had workers' comp insurance based on a survey of trainer licenses. Those numbers, however, are in dispute, according to Ludt. Ludt says most trainers have workers' comp insurance. But licenses are issued to trainers and owners, and owners are not required to have workers' comp insurance, he says. In addition, trainers often simply do not cheek off the box asking whether they have the insurance or not.

Kentucky's governor has promised a crackdown to make sure workers are covered. An investigation has been taking place at Turfway Park, Florence, Ky., to make sure that everyone who should have a certificate of insurance actually has one, according to William P. Emrick, executive director of the Kentucky Office of Workers' Comp.

"The tracks are working very closely with us on this," Emrick says. "We intend to be at all the tracks this year."

GUIDANCE FROM NEW YORK

The Kentucky governor's blue ribbon panel is expected to continue the work of the Kentucky Horse Racing Association which had been asked by the governor in November to study the jockey coverage issue after the riders had refused mounts.

The KHRA had recommended to the governor in February that Kentucky create a workers' comp fund for jockeys and exercise riders similar to the successful one that has been used in New York for more than a decade. But it was decided that there was not enough time to get the KHRA proposal done this year.

Kentucky is considering a program similar to the New York Jockey Injury Compensation Fund, which provides full medical coverage for licensed jockeys, assistant jockeys and exercise riders if injured in the course of their employment.

For insurance purposes, the riders are treated as employees of the fund. The fund is financed through three sources; a flat fee paid by owners and trainers; a stall fee, which is used to determine the appropriate premiums, and a percentage of the purse.

The Kentucky Jockey Injury Compensation Fund proposed by the KHRA in February would cover jockeys, apprentice jockeys and exercise riders, like the New York fund, and it would be paid for by a flat fee paid by the owners and trainers, Ludt says.

Although Kentucky favors the New York model, it is one that makes it difficult to mandate loss-control measures, Ludt says.

A new fund also would have to be set up in such a way that it would be attractive to prospective insurers, seeking quotes from Kentucky Employers Mutual Insurance, for example, as well as any other insurer that might be interested.

Ludt says he had gathered information about accidents from Kentucky tracks and met with Kentucky Employers Mutual officials a few months ago to discuss the potential cost of such a program.

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One of the sticking points facing the horse-racing industry, though, has been that it does not have accurate loss histories, according to a report published on the National Horsemen's Benevolent and Protective Association Web site.

The industry also does not have a consistent, standard loss-prevention program, nor does it have a mechanism for recording and reporting accidents on a national level. Such information, however, is vital for developing insurance premiums.

Insurance premiums could be reduced by forming a captive and by developing systems for reporting accidents and payrolls so insurers and the industry alike can determine risk and better control losses, according to the HBPA report.

In Kentucky, there is still a lot of concern about how much a new jockey compensation fund will cost and who will have to pay for it, Ludt says.

"The hardest part about looking at how to do this is how do you get this fund funded without constantly charging the same people to the point where you chase people out of the industry," Ludt says. "The horse owner pays a lot of money to be in this game. It's just complicated."

Sellers says the tracks can find a way to pay for the insurance.

"There are many ways it can be paid for," he says, noting that jockeys have suggested that tracks, for example, give the Jockeys' Guild their uncashed winning tickets to help defray the costs.

For their part, jockeys have not staged any new protests since November now that major tracks such as Churchill Downs have started providing on-track coverage of as much as $1 million.

At Churchill Downs, the racetrack and the Jockeys' Guild announced a deal less than three weeks before the Kentucky Derby to keep riders from boycotting mounts in protest of medical insurance and safety issues.

For Sellers, though, there will be no more Kentucky Derbies. He says his career as a jockey is over and he's not coming back, even if the insurance problem is resolved. But he hopes that he has helped to draw attention to a serious problem and bring about change that will help young riders. "You're never going to get anything unless you fight for it. There's been a lot of people saying, 'Why do you all have to do it this way?' Well, we've been asking and begging for 40 years," Sellers says. The tracks have made a lot of money off horse racing, he says, but the industry has shown little concern for the welfare of the jockeys.

"Don't treat me like a slave. I'm one of the main two reasons you have that money. Without me and the horses, you don't have anything."

While the horse-racing industry is in the spotlight now, insurers and regulators may start cracking down on cattle ranchers and other farmers suspected of underreporting payrolls or failing to provide coverage to workers who should be covered, says Laura Koester, practice leader for the agribusiness unit of broker Willis.

RELATED ARTICLE: Insurers and horse-racing lobbies agree on coverage options for workers.

A working group formed by the National Thoroughbred Racing Association last November to review the issue of insurance for jockeys issued its recommendations in April.

The 33-member Jockey Accident Insurance Working Group was made up of racetrack officials, trainers, owners, jockeys and other members of the horse-racing and insurance industries.

They recommended that:

* Comprehensive workers' compensation coverage should be a major consideration in all racing jurisdictions where workers' comp is not already in place. Workers' comp models similar to those in place in California, Maryland, New Jersey and New York should serve as industry models.

* Coverage through a private insurance carrier or formation of a private insurance captive also should be given consideration as an alternative to state-legislated workers' comp.

* The industry should strive to raise the level of accidental insurance coverage for jockeys to levels commensurate with coverage provided by the Jockeys' Guild before it discontinued catastrophic accident coverage on behalf of its riders.

* Although placement of coverage and funding must be resolved by industry participants in individual jurisdictions, the working group called for all segments of the industry, including jockeys, to contribute to the funding of any additional insurance coverage for jockeys.

* The working group will share its data and research with industry members and assist in the development of model language for workers' comp legislation.

In addition, a subcommittee of the working group identified private insurance coverage through AIG, which has since written policies for NTRA-member racetracks, the NTRA said. Those tracks include tracks owned by Churchill Downs Inc: Arlington Park in Illinois, Calder Race Course in Florida, Churchill Downs in Kentucky, Ellis Park in Kentucky, Fair Grounds in Louisiana, and Hoosier Park in Indiana; as well as Emerald Downs in Washington, Gulfstream Park in Florida, Keeneland in Kentucky, Kentucky Downs in Kentucky, Sunland Park in New Mexico and Turfway Park in Kentucky.

Several tracks have increased their on-track accident coverage to $1 million from $100,000 after reports that the Jockeys' Guild had discontinued catastrophic accident insurance coverage for its members, and after jockeys refused to ride at Churchill Downs and Hoosier Park. "Those organizations that have taken action to increase their level of jockeys' catastrophic accident insurance coverage should be commended," says NTRA Commissioner D.G. Van Clief Jr. "I'm hopeful that all segments of the industry will continue to work together to try to find a long-term solution to this difficult issue."

Patricia Vowinkel

RELATED ARTICLE: Tightening the reins on workers' compensation.

Although the horse industry's insurance practices are in the spotlight right now because of the controversy over jockeys, other agricultural industries should pay close attention because they could be next, says Laura Koester, practice leader for the agribusiness unit at broker Willis.

Employers are required by law to provide workers' compensation insurance for their employees. In the horse industry, however, jockeys are not eligible for workers' comp because they are considered independent contractors.

Other workers who should be covered by workers' comp, however, may be slipping through the cracks. According to a report in the Lexington Herald-Times only one-third of trainers in Kentucky had workers' compensation insurance based on a survey of their licenses.

Kentucky Gov. Ernie Fletcher has promised a crackdown on the horse industry to make sure that everyone has the proper insurance. This scrutiny by regulators and insurance companies could extend to other farms and even cattle ranches in the west, Koester says.

"The horse industry is getting hit first because it is more high profile and you've got gambling involved," she says. "But the ranches are on the radar screen too. Although they haven't been targeted and hit as hard, they're about to be, and they are on the radar screen," she says. Some of the bigger ranches and cattle operations have been starting to step up to the plate and buy the necessary levels of workers' comp, she says.

Many farmers in the past, tried to rely on an agricultural exclusion that allowed them to get out of providing workers' comp insurance because most workers on small farms tended to be immediate family members, she says.

But some are now inappropriately relying on the exclusion to avoid buying insurance. Other farms and ranches are underreporting payrolls or claiming that workers are independent contractors when they really are not, she says.

To protect themselves, farms and cattle ranches must have certificates of insurance, independent contractor forms or opt-out forms from any vendor that provides a service that is customary, ordinary and recurring, she says.

"In our neck of the woods here in Lexington, you've got farriers that are on the farms all the time, veterinarians, the fencing is painted yearly or bi-yearly, the grain is delivered, hay is delivered," she says. "You've got all kinds of vendors coming on the premises," she also says. "If it's customary, ordinary and recurring, then you better have a certificate of insurance," she says.

Vendors should have certificates of insurance, but it is up to the farm to ask for it and have it on file, she says. Independent contractors, such as blacksmiths, she says, can waive the certificate of insurance by signing an independent contractor form. But blacksmiths cannot waive for apprentices and so then the farm will get charged back for that during an audit.

Blacksmiths can incorporate and officers can then opt out and buy their own insurance, she says. "I'm just telling them you just need to make multiple copies of your opt-out forms or your independent contractor forms and you need to give it to all the farms you go on to the premises of to perform any type of services," she says.

Although it may seem like a lot of extra paperwork, it can save farm owners money in the end, she says.

"We had a couple of audits here in Lexington, where they (farms) had to pay a significant amount of money because they had to cover the blacksmiths on their workers' comp policy," she says. "They were not happy about that, I can assure you." By being aware upfront, the farm would have the opportunity to choose a blacksmith that had insurance of its own, she says.

Some employers have tried to avoid providing workers' comp insurance by arguing that their workers were independent contractors. However, employers can be taking a big risk if it's determined that the employee was not an independent contractor.

"Years ago there was a gentleman that was hurt here at the training center and the trainer tried to argue that, well, he's an independent contractor," she says. "Well, it didn't fly. He went through an audit and had to pay a tremendous amount of money for all the exercise riders he had not paid on for the previous five years."

By failing to buy sufficient insurance to cover all their employees, employers not only are shortchanging those workers and putting themselves at risk, but they are weakening the entire workers' comp system, she says.

"What hurt was because you didn't have a true pool, the rates were higher for those who did do the right thing and purchased their workers' comp," she says. But with stricter enforcement, employers will have to buy the proper insurance. Although it may mean a higher out-of-pocket expense upfront, she says "the fact of the matter is you have to have it.

"You just can't play that game. They're going to clamp down on it. I know everyone is going to hate it at first. But I think in the long run, if you have everyone participating, then there should be a larger amount of money available for claims."

Patricia Vowinkel

PATRICIA VOWINKEL is a frequent contributor to Risk & Insurance[R]. She can be reached at riskletters@lrp.com.