Stories of alleged sexual misconduct have dominated recent headlines. Allegations of sexual assault raised against Supreme Court Brett Kavanagh have been the lead story all week, and there has also been extensive coverage of the criminal sentencing of Bill Cosby for sexual assault. These stories arise as part of a broader series of revelations of sexual misconduct involving media figures, politicians, and corporate executives.
In the midst of this depressing litany one of the most disturbing sets of disclosures has been the revelations of the sexual misconduct involving former Michigan State University and U.S. Olympic gymnastics team physician Larry Nassar. Allegations relating to Nassar are back in the news again because of a new lawsuit a former MSU athlete has filed. The plaintiff’s allegations raise a number of issues. As discussed below, the new complaint contains extensive allegations against MSU’s Board of Trustees, underscoring how the allegations raised in the current wave of sexual misconduct allegations can lead to claims against organization’s directors and officers.
As I detailed in an earlier post, allegations of sexual misconduct against Nassar first began to surface in 2015, after a number of athletes came forward to assert that Nassar had sexually assaulted them. A number of athletes filed lawsuit against Nassar and others, seeking damages. Nassar ultimately pled guilty to numerous federal and state criminal charges. In addition, as I also detailed in the earlier post, in May 2018, MSU entered a comprehensive settlement with 332 individuals who claimed to have been sexually assaulted by Nassar. As part of the settlement, MSU agreed to pay the claimants a total of $500 million.
On September 10, 2018, another claimant, Erika Davis, filed a new lawsuit raising allegations of sexual misconduct involving Nassar. The complaint, a copy of which can be found here, was filed in the Western District of Michigan. Davis claims that in 1992, when she was a 17-year old MSU field hockey, she sought medical attention after twisting her knee in practice. Her coach sent her to Nassar. She claims that Nassar sexually assaulted her during his medical examination. She also alleges Nassar drugged her and raped her. Davis also alleges that a man with a video camera filmed the sexual misconduct.
Davis says that she told her coach what had happened and that her coach had demanded and obtained the video. The coach was forced to return the video when George Perles, at the time the athletic director and Michigan state and now a trustee, intervened. The coach allegedly was forced to sign a non-disclosure agreement and resign. Davis also alleges that she became pregnant, had a miscarriage, and reported the rape to Michigan State Police in October 1992. The complaint alleges that a detective told her that his “hands were tied” and she had to report the incident to the athletic department.
The complaint names Nassar and about a dozen other defendants, including MSU itself and the MSU Board of Trustees. The complaint raises a number of substantive allegations against the University and the Trustees. Among other things, the complaint asserts claims against the Trustees for Violation of Title IX; Sex Discrimination under the Patient Protection and Affordable Care Act; Gross Negligence; Negligence; Vicarious Liability; Express or Implied Agency; Negligent Supervision; Negligent Failure to Warn or Protect; Negligent Failure to Train or Educate; Negligent Retention; Fraud and Misrepresentation; and Violation of the Michigan Civil Rights Act.
Davis is not the only one raising questions about MSU’s Board of Trustees. A detailed September 26, 2018 article in The Atlantic entitled “Michigan State’s Untouchable Board of Trustees” (here) takes a look at the heat the Board has been taking as the Nassar scandal has unfolded. Despite the horrible revelations and the resignation of the University’s president, the Board itself has managed to remain “unscathed.”
The article contends that the Board’s seeming impunity has to do with the unusual process by which Trustees are selected and appointed. Rather than being appointed to their positions by the state’s governor, and therefore subject to being removed by the governor, the MSU Trustees are elected to 8-year terms in state-wide elections. Because the state-wide constituency largely has no direct contact with the school or its students or faculty, there is “little to compel [the Board] to stand up to the administration, or to answer to MSU students, faculty and staff.” A proposed constitutional amendment to revise the Trustee appointment procedure and provide for appointment by the governor has been introduced in the Michigan Legislature.
As I have noted in connection with the many lawsuits that have now been filed against organizations, their management and the directors following revelations of sexual misconduct, the accountability process for the misconduct has targeted not only the active wrongdoers, but the wrongdoers’ organizations’ senior officials, who are alleged either to have facilitated or allowed the misconduct, or turned a blind eye. These kinds of lawsuits against the wrongdoers’ organizations and the organizations’ senior officials are either filed by the alleged victims of the misconduct or, as has been the case in a number of lawsuits (refer, for example, here) by investors who claim their investment interests have been harmed. The claims against MSU’s Board are noteworthy in the particular respect that the school is a non-profit entity, by contrast to other lawsuits against boards based on underlying sexual misconduct allegations which in many instances have involved publicly-traded companies.
The Atlantic article to which I linked above claims that MSU’s Board has emerged from the Nassar scandal “unscathed,” but Davis’s lawsuit does represent an effort to try to hold the university’s board to account. Whether or not her effort is successful, her complaint does represent a statement of a kind that the school’s board is responsible for what allegedly happened – to her, and to Nassar’s many other victims. It is at this point clear that an important part of the sustained run of revelations of sexual misconduct is an effort to establish that the persons charged with supervising the wrongdoers are responsible for what happened and should be held accountable.
The claims against the Board obviously represent a D&O claim. However, because the claims against the Board are based on her allegations of sexual assault, the claims appear to me to be more of a matter for the third-party liability coverage under the University’s Employment Practices Liability Insurance, rather than a matter for the University’s Non-Profit Organization D&O Insurance policy. Typically, a Non-Profit Organization D&O Insurance policy will contain an exclusion precluding coverage for employment practices liability claims (including third-party EPL claims). These exclusion sometimes are written broadly, precluding coverage for any claims “arising out of or in any way relating to” an employment practices wrongful act. To the extent the University’s Non-Profit D&O policy has this type of exclusion, coverage for the kind of claims asserted in Davis’s complaint would be precluded.
However, in some D&O insurance forms, these EPL exclusions apply only to the policy’s entity liability coverage, meaning that the exclusion would preclude coverage only for claims against the entity but would not for preclude coverage for the claims against the individual Board members. In those circumstances, the Board members could at least potentially look to the school’s D&O policy for protection. (Of course, given the extensive claims history relating to Nassar, there may be precious little coverage remaining under any insurance policy.)
In any event, this latest lawsuit arising out of the Nassar scandal represents yet another instance where the accountability process following revelations of sexual misconduct includes efforts to hold the board of the wrongdoer’s organization accountable and responsible what happened. This process seems likely to continue as the revelations continue to unfold.