7 March 2019Analysis

Michigan State University sets up captive following sex scandal

Michigan State University (MSU) had set up a captive insurance company following its former primary insurer, United Educators, introducing “onerous” new terms after allegedly failing to provide general liability insurance coverage for lawsuits and claims arising from the Larry Nassar sex abuse scandal.

Nassar was the USA Gymnastics national team doctor and an osteopathic physician at Michigan State University. He was sentenced in July 2017 to 60 years in federal prison after pleading guilty to child pornography charges.

MSU’s captive Lysander is part of the Aesir Group, licensed in North Carolina. MSU spokesperson Heather Young told Captive International that the new terms introduced by United Educators meant it would no longer provide the university with the sufficient coverage it previously provided.

“Captive insurance arrangements are fairly standard for universities and certain public institutions, among other reasons because they provide more direct access to reinsurance markets,” said Young.

“The new policy broadly excludes insurance liability for sexual misconduct. However, MSU will continue to assess insurance coverage needs and self-insurance programs and consider whether additional coverage of any kind is necessary to protect the university’s interests.”

MSU had agreed to pay a $500 million settlement to 333 claimants in connection to Nassar’s abuse, which led to United Educators reducing the coverage it offered when negotiating to renew its policy.

The university filed a lawsuit against 13 of its insurers - including United Educators - alleging they had completely failed to provide MSU with insurance coverage, pursuant to multiple insurance contracts, for numerous lawsuits and claims asserted against the university arising from the conduct of Nassar.