Michigan State University continues to explore its insurance coverage options with regard to sexual assault or molestation claims brought against the school after rejecting renewal coverage offered by its long-term liability insurer and setting up its own captive insurer for general liability.
MSU’s primary insurer for general liability coverage from 2000 to 2018 was United Educators, according to Heather Young, deputy spokesperson for the university. In an email to Insurance Journal, Young said in April 2018, United Educators notified the school that it would not renew MSU’s coverage upon the “annual June expiration of the last UE policy. In early June, UE reversed course and offered to renew but had onerous new conditions and terms that would have narrowed the scope of coverage. It would no longer provide the university with the coverage it previously provided.”
Previous UE policies held by MSU had covered claims against the school arising from allegation of abuse or molestation.
The university began exploring the option of creating a captive insurer to cover general liability after receiving the notice of cancellation from UE in April 2018. After receiving the subsequent offer of coverage from UE in June 2018 that MSU found unacceptable, the university “finalized the work started in April to create the captive,” Young said.
To develop the captive, MSU worked with USA Risk Group, which is headquartered in the Cayman Islands and has offices in the U.S. in South Carolina, Tennessee and Vermont. The captive, Lysander Series, launched July 1, 2018, and is domiciled in North Carolina.
“It is a series of Aesir Series LLC, a licensed captive insurer in North Carolina,” Young said.
The captive “excludes coverage for claims arising from abuse or molestation of any person while in the care, custody or control of MSU. MSU continues to assess its insurance coverage and self-insurance programs to best protect the university’s interests going forward,” Young said.
Coverage provided by the Lysander Series includes primary general liability and automobile liability. “It has a $10 million limit for each occurrence and a $20 million general aggregate limit. MSU has a $5 million self-insured retention and the Lysander coverage is entirely reinsured. Excess coverage of $45 million is in place above the Lysander policy limits,” she said.
Sex Assault Claims
MSU’s liability insurance problems arose out of the Larry Nassar sexual assault scandal that has embroiled both the university and USA Gymnastics.
A former sports doctor and trainer, Nassar treated campus athletes, as well as those affiliated with USA Gymnastics, at his Michigan State office. Nassar pleaded guilty to molesting hundreds of women and girls under the guise of treatment, according to the Associated Press. He is serving a 60-year federal prison term for possession of child porn. Nassar also has been sentenced to 40 to 175 years in state prison for the sexual assaults.
In May 2018, MSU agreed to pay $500 million to settle the claims of more than 300 women and girls who said Nassar assaulted them while under his care. Some of the complaints against Nassar reportedly go as a far back as the 1990s; MSU was accused of ignoring or dismissing them.
MSU’s board of trustees approved selling $500 million in bonds to pay for the settlement. In a statement released in December 2018, the university announced it had competed the transfer of funds into the court-ordered settlement fund.
According to information posted on its website, United Educators is a reciprocal risk retention group and a licensed insurance company owned by around 1,600 members that include U.S. schools, colleges and universities.
In its Large Loss Report 2019, United Educators stated that the Nassar settlement reportedly is “the largest ever for a sexual abuse case against a U.S. higher education institution.” UE’s Large Loss Report summarizes damage awards and settlements of more than $250,000 involving educational institutions. The cases summarized do not necessarily involve UE members.
In July 2018, then-MSU General Counsel Robert Young announced the university had filed a lawsuit against its insurance carriers over coverage for sexual assault claims. “We are suing our carriers, including our largest carrier United Educators, for failing to honor their policies. It is disappointing and unfortunate we have to go to court on this matter, but we are hopeful this lawsuit will bring us to speedy resolution and that the insurance companies will honor their contractual obligations,” Robert Young said.
According to the Associated Press, in addition to United Educators the insurers named in the suit include: United National Insurance Co.; Federal Insurance Co.; Westchester Surplus Lines Insurance Co.; Ironshore Specialty Insurance Co.; Michigan Universities Self Insurance Corp.; Genesis Management and Insurance Services Corp.; National Union Fire Insurance Co.; American Home Assurance Co.; TIG Insurance Co.; American Insurance Co. Corp.; The Doctors Co.; and Sompo International.
In a March 7, 2019, email to IJ, MSU spokesperson Heather Young said the university expects its “insurers will make good on their commitments to MSU. All settlements paid by MSU in connection with this matter are part of MSU’s insurance claim and at issue in the insurance litigation. As this matter is in litigation, we have no further comment.”
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