The allegations joining PennState and its officials with the Jerry Sandusky sexual-abuse casesprovide a regrettable study of how we turn to insurance to help usthrough the worst of situations—at least financially. As theseallegations play out, the media has been quick to discuss theirdevelopment and speculate on how the university's defense will befunded.

Penn State's Openness Website, dedicated to providing “the latest information…regardingongoing investigations,” reports that the university carriesGeneral Liability and D&O insurance, “which are expected tocover the defense of claims brought against the university and itsofficers, employees and trustees” in the Jerry Sandusky case. TheGeneral Liability carrier is identified as the PennsylvaniaManufacturers' Association (PMA), which has provided GeneralLiability insurance for Penn State from the 1950s to thepresent.

Also mentioned on the Openness site is the fact that PMA filed alawsuit in January asking that it be relieved of obligations todefend or pay for a civil lawsuit filed against Penn State in thefirst suit on the Sandusky matter. The PMA suit seeks a declaratoryjudgment releasing the company from having to pay costs to defendPenn State in a suit by John Doe A.

In reponse, Penn State has sued PMA for breach of contract forduty to defend, breach of contract for duty to indemnify,anticipatory breach of contract and bad faith. Much of the argumentrevolves around which GL policies will or will not be triggered bythe Doe A lawsuit.

The university filed its liability claim under the 2004 PMApolicy, contending a continuous-trigger theory. Penn State contendsthat it is entitled to a defense under each of the PMA policiesthat were in force during the period of the alleged continuingabuse.

Additionally, the university believes it is entitled todesignate the policy that it wants to call up—namely, the 2004policy.

To the contrary, PMA has indicated that it may provide coveragefor the negligence allegations (and applicable defense) only underits 1991 policy, positing a theory that only the policy in effectat the time the alleged injury first commenced may apply. It hasreportedly denied all coverage obligations from 1992 through thecurrent policies.

The issues here are complicated—and the damages could beastronomical. It is impossible to predict how Penn State will farein its battle with PMA. Keep in mind that PMA has insured PennState's liability exposure continuously over the last 50-plusyears.

But coverage is contractual in nature, and a number of issueswill arise and be argued in addition to the question of whichpolicy is triggered. Among these are exclusions that PMA notes inits reservation-of-rights letter:

• Potential intentional-act exclusion: Does this exclusion applyto the university and Sandusky (the alleged perpetrator) or only toSandusky?
• The known-loss exclusion: Did Penn State really have knowledge,suspicions or neither?
• The insurability of punitive damages: Pennsylvania haspermitted the insurability of punitive damages for vicariousliability. If Penn State is held vicariously liable here, would PMAfind itself responsible for potential punitive damages? (This, ofcourse, hinges on there being coverage in the first place.)
• The presence of an abuse/molestation exclusion on PMA's 1992policy: The application of this exclusion hinges on the policy thatis triggered (if one is). In addition, does the exclusion reach tothe university or only to Sandusky?

Penn State has a rough course on this one, and the battle withPMA will be a long one. I imagine that the university's D&Oinsurer is more likely working with Penn State in dealing withvarious coverage scenarios. Stay tuned for some of the issues thatwe can speculate about under the D&O policy.