Larry Nassar in court in Lansing, Mich., on May 16, 2017.
Michigan State University agreed to pay $500 million to more than 300 victims of sexual abuse by Larry Nassar, the sports-medicine doctor it employed, a sum that is among the largest for victims of abuse and leaves unclear the future financial path for one of the nation’s top public universities.
Officials at the 50,000-student campus declined to say how they would pay for the settlement, and it isn’t clear if they have figured out how. They declined to rule out raising tuition or a state bailout, and they can’t use the university’s endowment. Michigan State’s interim President John Engler also didn’t rule out bankruptcy in testimony before the Michigan State Senate in March.
The East Lansing, Mich., university will pay $425 million to the victims, or about $1.25 million each. It will set aside an additional $75 million in a trust to protect any future claims of sexual abuse against Nassar.
The settlement dwarfs the more than $100 million issued by Pennsylvania State University to settle civil claims filed by more than 30 men who said they were sexually abused by retired assistant football coach Jerry Sandusky.
The Michigan State settlement covers lawsuits filed by young athletes, many of them gymnasts, who claimed that Nassar was abusing his patients for two decades.
The university’s board of trustees agreed to the settlement terms Tuesday night. On Wednesday morning, the board’s chairman, Brian Breslin, issued a statement saying the board was “truly sorry to all the survivors and their families for what they have been through, and we admire the courage it has taken to tell their stories.”
Michigan Sen. Tonya Schuitmaker, chair of the subcommittee for higher education appropriation, said the university hadn’t approached the state for money to cover the settlement.
“I would certainly hope before they agreed to a settlement they figured out how to pay for it,” she said. “Whether it’s endowment, or licensing or asking donors or having insurance pay for it.”
A Michigan State spokeswoman said the university “will be working on the solution in the near future” and that the school was in negotiations with its insurer about how much of the settlement it would cover.
In testimony earlier this year before the state legislature, Mr. Engler warned that the costs for the settlement ultimately would be borne by “students and taxpayers.”
“I don’t know if it would force bankruptcy [for the university] or not,” he said. “I hope not.”
Ms. Schuitmaker said she didn’t believe the costs would be passed on to students in the form of higher tuition. The state allocated the university $289 million for the current year, or 11% of its budget. That money comes with a cap on tuition. If the school tried to raise tuition to pay for the settlement they would lose $289 million, she said.
The school’s estimated annual revenue for this year of $1.36 billion is matched by its expected expenditures.
Nassar pleaded guilty last year to 10 counts of sexual abuse in Michigan state court to resolve the claims of scores of women who alleged he sexually abused them under the guise of medical treatment. He also pleaded guilty to child-pornography counts and was sentenced to more than 200 years behind bars.
The settlement doesn’t address similar claims also brought by athletes against USA Gymnastics, the United States Olympic Committee and others.
The Nassar case rocked the world of elite gymnastics and spurred leadership overhauls at USA Gymnastics, the U.S. Olympic Committee and Michigan State, where the president and athletic director resigned.
USA Gymnastics issued a statement Wednesday saying it was “very encouraged” by the settlement in principle, adding: “We remain committed to continuing our mediation efforts to reach resolution as well.”
Michigan State still faces an investigation by the Michigan Attorney General’s office into its handling of complaints against Nassar, as well as investigations by the U.S. Department of Education and at least two congressional committees.
Elite gymnasts including 2012 Olympic gold medalists McKayla Maroney, Aly Raisman and Jordyn Wieber alleged negligence by Michigan State in failing to act on reports of abuse going back to the late 1990s. The three are covered by the Michigan State settlement, their lawyer said.
National-team gymnasts are also suing USA Gymnastics and the U.S. Olympic Committee, as well as individual officials and coaches in some instances, alleging negligence. Meanwhile, some of the Michigan girls and women have also filed suit against USA Gymnastics, alleging that Nassar’s link to the elite team allowed him to attract new patients and that USA Gymnastics knew or should have known about his actions.
The per-victim settlement amount tracks closely with the $1.25 million USA Gymnastics agreed to pay Ms. Maroney, in December 2016, to resolve her sexual-abuse claims against Nassar, The Wall Street Journal has reported. Ms. Maroney filed a lawsuit in December against Michigan State, the U.S. Olympic Committee and others, seeking in part to be released from the confidentiality agreement attached to that earlier settlement.
Mr. Engler said at the time of his legislative testimony that he hoped insurance would cover settlement costs. But, he said, “sometimes insurers don’t pay,” citing the example of Penn State and its drawn-out legal battle with its insurer over the Sandusky matter.
Since 2013, Penn State University paid more than $100 million to settle those civil claims. Mr. Sandusky is serving a 30-to-60 year sentence in state prison after being convicted in 2012 of sexual abusing 10 boys.
Judy Galliher, a spokeswoman for United Educators, which provides insurance for Michigan State, said Wednesday that she couldn’t share any information related to the insurer’s portion of the settlement.
A person familiar with higher-education insurance policies said an insurer could try to lump together all of the losses related to a serial offender into one policy year, capping their liabilities at the one-year maximum—in this case, $39 million. The person noted that universities generally have additional liability coverage as well, besides the primary insurance policy.
The school could argue, however, that claims should be paid from multiple years’ of insurance policies, because the claims allege abuse from different years. “There would be an argument that a separate policy and a separate limit would come into play. This happens a lot in asbestos, and it’s a very complex issue legally,” said James Lynch, chief actuary of the Insurance Information Institute, a trade group representing insurance companies.
At Penn State, costs associated with legal fees, fines and settlements related to the Sandusky matter reached nearly $250 million. That includes more than $100 million in settlements with at least 33 people.
Penn State has said it is still seeking reimbursement for some expenses from its insurer.
As part of the settlement, there will be no confidentiality agreements or nondisclosure agreements, according to attorneys for the survivors.
“This historic settlement came about through the bravery of more than 300 women and girls who had the courage to stand up and refuse to be silenced,” said John Manly, an attorney for the victims. “It is the sincere hope of all of the survivors that the legacy of this settlement will be far reaching institutional reform that will end the threat of sexual assault in sports, schools and throughout our society.”