Penn State D&O Coverage May Pay For Employees’ Attorney Fees

Former Penn State defensive coordinator Jerry Sandusky at at the Alamo Bowl in 1999. (AP Photo/Eric Gay) Former Penn State defensive coordinator Jerry Sandusky at at the Alamo Bowl in 1999. (AP Photo/Eric Gay)

NU Online News Service, March 23, 11:58 a.m. EST

Penn State is telling subpoenaed employees to hire their own attorneys, which may be paid for by the university’s directors and officers’ insurance coverage.

The university, under the microscope since former assistant football coach Jerry Sandusky was charged with 52 counts of child sex abuse, received a subpoena in February from the U.S. attorney’s office in Pennsylvania.

This month, the state Attorney General served additional subpoenas to an unspecified number of Penn State employees, according to the university, whose general counsel says will remain anonymous unless they reveal themselves.

On its “Openness” website the State College, Pa.-based university this week released the following statement about the payment of legal fees for employees: “The university is suggesting those individuals who received subpoenas retain their own counsel and the university will agree to reimburse them for their legal expenses, as they were acting within the scope of their employment and in the interest of the university.”

“Expenses of such counsel may be paid by the university’s D&O insurance carrier.”

Penn State and its primary general liability insurer, Pennsylvania Manufacturer’s Associations Insurance Co. (PMA), have filed lawsuits against each other over legal expenses.

Penn State says its policy with PMA entitles the school to a legal defense of a civil lawsuit filed against the university regarding the allegations against Sandusky.

PMA says it has no duty to defend the university.

NU has learned Penn State is also a policyholder of United Educators, but the insurer could not comment further.

A civil suit would be filed after the criminal case against Sandusky is settled. Penn State is not immune from civil suit because it is not a state-owned school, or member of the Pennsylvania State System of Higher Education (PASSHE).

Membership here may have provided a measure of immunity under the Sovereign Immunity Act, which as a general rule, says a state entity is immune from suit.

As of Jan. 31, Penn State has spent more than $813,000 on university legal services and defense, according to its website. The university says an additional $338,545 has been spent on the legal defense of Graham Spanier, Tim Curley and Gary Schultz.

Penn State says Spanier resigned as its president last November.

Curley, the school’s athletic director, faces perjury charges related to the Sandusky case. He has been suspended.

Schultz, former Penn State vice president, also faces perjury charges.

Penn State says its bylaws state every trustee and officer of the university is entitled to be indemnified by the university for legal fees, as well as judgments, settlement amounts, fines and penalties related to actual or threatened lawsuits or investigations.  

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