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Costs From Nassar Case Likely to Exceed $500 Million for Michigan State

By Melissa Korn And Rebecca Davis O’brien
Wall Street Journal
March 25, 2018

https://www.wsj.com/articles/costs-from-nassar-case-likely-to-exceed-500-million-for-michigan-state-1521975601

A Spartan logo at the entrance of Michigan State University's education and public health research facility.
Photo by Jake May

The tally includes possible settlements with about 250 victims, legal fees associated with an army of law firms representing the university and fines

Financial fallout from sexual-abuse allegations against former U.S. national gymnastics team doctor Larry Nassar will likely soar well past half a billion dollars for Michigan State University, estimates from legal experts indicate, more than twice the cost of the abuse scandal at Pennsylvania State University.

The tally includes possible settlements with about 250 victims, legal fees associated with an army of law firms representing the university and fines. Victim settlements alone could account for over $300 million, based on precedents in the Penn State and Catholic Church abuse cases. It isn’t clear how much of the tab would be covered by the school’s insurers.

The looming costs have major implications for Michigan State, especially if state lawmakers pass proposed bills that would increase the statute of limitations for victims and take away legal immunity for public universities. Interim President John Engler, a former Michigan governor, has said increased tuition is one possible way to cover the costs, and warned that consequences could be even more dire.

“I don’t know if it would force bankruptcy (for the university) or not,” Mr. Engler said in a Michigan State Senate appropriations subcommittee hearing earlier this month. “I hope not.”

Estimating how much each victim could receive in a settlement is tricky, but risk management experts and lawyers who have made agreements in other sex-abuse suits say that the Nassar cases could reach up to $2 million each. USA Gymnastics signed a confidential $1.25 million settlement—paid by insurance—with former Olympic gymnast McKayla Maroney in late 2016, to resolve her sexual-abuse claims against Dr. Nassar, according to court filings; she filed a lawsuit in December against Michigan State, the U.S. Olympic Committee and others.

The dollar amounts can run higher if the victims were minors when the abuse occurred, or if they were assaulted more than once or after the university knew of similar allegations, these people said. Multiple plaintiffs have alleged that they complained about Dr. Nassar to coaches, doctors and others at Michigan State as early as 1997, and that their concerns were ignored or dismissed.

The payouts could also skew lower because of Michigan’s current statute of limitations, potential legal immunity for state institutions and the severity of the alleged abuse, according to court filings and people familiar with the lawsuits and similar litigation.

“It’s very difficult to extrapolate from one jurisdiction to another, from one incident to another, what the settlement cost could be,” said Kenneth Feinberg, who coordinated settlement talks for victims of former assistant football coach Jerry Sandusky at Penn State and is overseeing the compensation funds for the Archdiocese of New York. As a trial date approaches, he added, settlement amounts often rise.

At least 250 individuals have signed on as plaintiffs in civil suits in Michigan federal court against Dr. Nassar, Michigan State, USA Gymnastics and others. Several others have sued in California state court. Dr. Nassar pleaded guilty last year to federal child-pornography and state sexual-abuse charges, and is serving a 60-year federal prison sentence.

Mediation talks last fall between the university and plaintiffs fell apart in early December, according to people familiar with the discussions. Both sides have said they hope to resume negotiations.

Mr. Engler said at the subcommittee hearing that he would like to see the settlements “all wrapped up before the semester’s over.”

“The ball is in their court,” said attorney Mick Grewal, who is representing roughly 90 plaintiffs. The plaintiffs filed motions for discovery earlier this month in Michigan federal court.

Mr. Feinberg said another potential approach is establishing a victim compensation fund, with an administrator evaluating claims and offering payouts based on specifics of the abuse. With that approach, Mr. Feinberg has overseen payments to resolve more than 450 claims of abuse against the Catholic Church in New York so far. Such systems were also used after the BP oil spill and the Sept. 11, 2001 terrorist attacks.

At Penn State, costs associated with legal fees, fines and settlements related to charges that Mr. Sandusky abused a number of boys, and that school officials knew of the behavior, reached nearly $250 million. That includes more than $100 million in settlements with at least 33 people.

Penn State said it is still seeking reimbursement for some expenses from its insurer. Penn State has paid any expenses not covered by insurance through interest revenues related to loans the university made to “self-supporting units,” according to a school spokesman.

In January, Michigan State filed a motion to dismiss the federal civil claims against it, saying state law shields the university from liability for Dr. Nassar’s crimes. The school also said most of the claims were invalid because they are too old or come from non-students.

The university is facing an investigation by the Michigan Attorney General, as well as at least two each from Congressional committees and the U.S. Department of Education. Michigan lawmakers and the NCAA are also looking into how the university handled the abuse claims.

Michigan State’s roster of legal support includes a number of high-profile law firms, including Skadden Arps, Akin Gump, Dickinson Wright, Miller Canfield and Husch Blackwell. A contract with DLA Piper, signed last month, guarantees at least $50,000 per month for the firm to represent Michigan State before Congress and the executive branch, through January 2019.

The school said it is paying for its legal experts with non-endowment investment income.

A university spokeswoman said insurers had not yet reimbursed any defense costs related to the Nassar case, nor have they acknowledged that their policies cover these matters.

United Educators, Michigan State’s primary insurer, declined to comment.

Michigan State’s primary insurance policy, reviewed through a public records request by The Wall Street Journal, caps coverage for sexual assault at $39 million per policy year.

“A key ingredient is often who knew what, when,” said Ann H. Franke, a former executive at United Educators and now president of Wise Results LLC, a higher education risk management consultancy, who has not worked on the Michigan State case. She said coverage for sexual misconduct, often through supplemental policies, typically requires that the school immediately report to the insurer any reasonable suspicion of child molestation.

Contact: melissa.korn@wsj.com




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