Chances are that you have heard an anecdote or two about Lloyd’s of London, the insurance company known for, among other things, issuing policies that involve coverages other than the usual for automobiles and houses. A whisky company, for example, once bought a policy from Lloyd’s that would cover the cost of a reward to anyone who managed to haul in the Loch Ness Monster. Famous singers have had Lloyd’s insure their voices.

Similar stories involve promising or well-established athletes purchasing injury or long-term disability insurance coverage from Lloyd’s. As the Orange County Register recently reported, former University of Southern California wide receiver Marqise Lee did just that, taking out a $5 million policy that would pay benefits to him in the event that an injury or other disability caused him to be less valuable in the eyes of National Football League (NFL) professional teams come draft day.

Lee’s decision appeared prescient, as the player wound up spraining the MCL in one of his knees in September – when the college football season was in full swing. He missed a few games and reportedly played at less than 100% in some others. He was subsequently drafted in the second round by the NFL’s Jacksonville Jaguars, who offered him a four-year contract worth over $5 million.

Lee’s policy with Lloyd’s, however, promised to pay him the difference between the value of his rookie contract and $9.6 million, up to a difference of $5 million.

Like so many other insureds, Lee filed a claim for benefits based on his injury.  Lee filed a claim with Lloyd’s to collect the difference between his rookie contract and the $9.6 million baseline, which came to a little more than $4.5 million, by filing a proof of loss claim based on medical information about his injured knee. Lloyd’s, in response, argued that Lee’s claim either misrepresented, concealed or left out critical information that would have, in effect, nullified the policy.  Lloyd’s argument, that Lee did not disclose his entire relevant medical history, is a common argument made when a claimant files for disability insurance benefits, even if the claimant did disclose his or her entire medical history.  Legally, it is called policy “rescission,” a tactic many insurers use inappropriately.

Lee subsequently filed suit in California against underwriters from Lloyd’s, asking to be awarded damages of $4.5 million and claiming that Lloyd’s made the choice to deny the claim “in bad faith” (that is, in violation of the implied covenant of good faith and fair dealing that is inherent in every insurance contract) and “with a conscious disregard for Lee’s rights.”  Lee’s lawsuit also seeks punitive damages in excess of $4.5 million, “to make an example of the defendants and in order to deter similar conduct.”

Lloyd’s has tried to get the case heard in New Jersey, rather than in California. The Garden State is said to have laws that are more advantageous to insurance companies – one more reason why you should considering consulting an attorney, who can advise you of your options for surmounting little-known obstacles to resolving your case.