Penn State Sues PMA Insurance Over Alleged Breach of Contract

March 6, 2013

Pennsylvania State University on Tuesday filed a lawsuit against Pennsylvania Manufacturers’ Association Insurance Company (PMA), alleging that the insurer failed to honor obligations owed to the school under comprehensive and commercial general liability policies.

The lawsuit, part of ongoing coverage dispute between Penn State and PMA, was filed in the Court of Common Pleas of Centre County, Pennsylvania, Civil Division.

Penn State charges in the complaint that PMA didn’t honor its obligation under the school’s CGL insurance policies with respect to a number of underlying claims and lawsuits filed against Penn State regarding allegations of sexual misconduct by a former employee, Gerald Sandusky.

According to the complaint, Penn State purchased CGL policies from Blue Bell, Penn.-based PMA for consecutive 12-month periods for over 50 years and paid “substantial insurance premiums” over those years. But when various individual claimants began to raise claim and file lawsuits against Penn State concerning Sandusky, “PMA failed to provide the coverage for which Penn State had bargained and paid,” the lawsuit alleges.

The complaint says PMA failed or refused to agree to defend or indemnify Penn State with respect to these claims and lawsuits. “Instead, PMA denied coverage or reserved its rights in response to certain claims and suits and has failed to issue any coverage determination in response to others,” according to the lawsuit.

Penn State is seeking recovery for alleged breach of contract and/or alleged anticipatory breach of contract relating to PMA’s “refusal to fully honor its coverage obligations to Penn State with respect to these claims and lawsuits,” according to the complaint. The university is also seeking punitive damages and defense costs and fees for PMA’s alleged bad faith claims handling and refusal to defend and provide coverage.

The lawsuit discusses some 30 individual underlying claims or lawsuits that have been brought against Penn State since January 2012 that allege misconduct by Sandusky. These claims or lawsuits “at the very least, potentially triggers coverage under at least one or more PMA policies issued to Penn State,” the lawsuit says.

The complaint says the policies, in most cases, contain a $2 million “per occurrence” limit and a $3 million aggregate limit. The lawsuit argues that each of the underlying claims trigger, at the very least, each PMA policy in effect on the date that each “injury,” as that term is defined in the PMA policies, alleged first was suffered by each individual claimant. Penn State demands a jury trial on all issues triable to a jury.

Pennsylvania Manufacturers’ Association Insurance Company was not immediately available for comment regarding the lawsuit.

Sandusky, a former Penn State assistant football coach, was convicted last year of abusing 10 boys and was sentenced to at least 30 years in prison, but he maintains his innocence and is appealing.

The case is The Pennsylvania State University v. Pennsylvania Manufacturers’ Association Insurance Company, the Court of Common Pleas of Centre County, Pennsylvania, Civil Division 2013-819, March 5, 2013.

“Having been a major client of PMA since the 1950s, Penn State is disappointed by the response of this insurance firm to the University’s situation. By refusing to honor its obligations to provide [full] coverage to Penn State, PMA has essentially abandoned a decades-long client,” the university said in a statement.

“Penn State will aggressively pursue the coverage for which it has paid over $23 million since 1983 and to which it is entitled.”

The university said its relationship with PMA was terminated late last year, when Penn State cancelled its policies with PMA. The university also said one of the excess insurance carriers has also denied coverage. Penn State said it is “working with its other insurers in an effort to obtain their constructive participation with respect to the Sandusky claims.”

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