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MSU halts counseling payments to Nassar victims, sues insurers after fraud allegations

Mark Hicks
The Detroit News
"Sparty" statue at Michigan State University.

Michigan State University suspended payments to victims in the Larry Nassar sex abuse case seeking help from a counseling fund following allegations of fraud, the school said Thursday, while at the same time it is suing insurers, claiming coverage denial in the $500 million settlement.

“We are suing our carriers, including our largest carrier United Educators, for failing to honor their policies,” said Robert Young, MSU’s general counsel, in a statement. “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.”

The lawsuit filed in Ingham County Circuit Court claims that after the settlement reached between MSU and Nassar victims and millions of dollars incurred, "no defendant insurer has paid any amounts whatsoever to reimburse MSU for costs it incurred in connection with the defense and settlement of MSU's liability arising out of Nassar's conduct."

The claims in the Nassar case are covered under the insurers' policies, including some for United Educators listing "vicarious liability for sexual or physical abuse or molestation," the suit asserts. However, the companies "refused to acknowledge even the potential for coverage under their respective policies, and/or ... denied having any coverage obligation whatsoever with respect to the underlying claims." 

Since the insurers breached their contractual duties, the university "has borne and continues to pay for the entire cost of its investigation and defense with respect to the underlying claims, and will likewise bear the full costs of the settlement," lawyers said in the filing.

Representatives for United Educators, one of the insurers listed in the lawsuit, did not immediately respond to a request for comment Thursday night.

Meanwhile, MSU is investigating fraud claims related to help for Nassar victims.

In December, MSU launched the Healing Assistance Fund, which includes $10 million for health clinic patients and student athletes whom Nassar abused, as well as their parents, to access counseling and mental health services.

Commonwealth Mediation and Conciliation, a firm that manages the fund, on Tuesday notified the university of possible fraud claims and concerns, MSU spokeswoman Emily Guerrant told The Detroit News.

“MSU has decided to halt all further payments while the situation is investigated,” she said.

Other details about the investigation were not available.

News of the suspension of counseling payments alarmed advocates for the victims.

“If there is fraud, they should root it out and go after the people who are engaging in it,” said John Manly, the attorney for most of the women who sued MSU and other institutions. “But some of our clients who have nobody absolutely depend on (the fund). What are they going to do now?

Nassar was sentenced to up to 175 years in prison by state courts on sex abuse charges. He already was serving a 60-year federal sentence for possessing child pornography.

More than 200 young women testified that they had been victimized by Nassar over two decades while he was a sports physician for MSU and USA Gymnastics.

A civil lawsuit that sparked the historic $500 million settlement includes more than 330 victims.

The MSU Board of Trustees approved the deal in June. The university has said it intends to pay the settlement through bonds, which MSU would repay with insurance, investments and interest.

Nassar, meanwhile, is seeking a new prison sentence.