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Penn State scandal spurs liability coverage examination

Posted On: Jan. 1, 2012 12:00 AM CST

The first civil lawsuit naming Pennsylvania State University in connection with child sexual abuse allegations has spurred state and school officials to define how its liability insurance will address its potential financial liability.

In a December letter to state Sen. Mike Stack, D-Philadelphia, Penn State President Rodney Erickson said the school's liability insurance will cover financial obligations arising from civil suits.

“I am very concerned about how these potential lawsuits would be handled and how the university will pay for its representation,” Sen. Stack said in a statement after meeting with Mr. Erickson. “The president assured me that no taxpayer funds, student tuition or donor dollars will be used, and he explained that the university's liability policies are segregated from its general fund,” the senator said.

The suit, the first of many expected, alleges that former Penn State Assistant Football Coach Gerald A. Sandusky abused the plaintiff hundreds of times, including at Penn State facilities, from 1992, when the victim was 10, to 1996. The suit also alleges that Penn State officials knew of and failed to prevent Mr. Sandusky's misconduct.

Penn State may face unlimited liability in civil litigation because it may not be able to invoke sovereign immunity, which protects state entities and employees from tort claims and imposes limits on liabilities, experts say.

Penn State has a captive insurer, Nittany Insurance Co., that it formed in Vermont in 1993. Coverage provided by the captive includes general and professional liability, according to Penn State's website.

In a statement, Penn State's office of public information said that in an effort to prevent legal costs from falling on the public, the university's directors and officers insurance would help cover the costs of any lawsuits.