NCAA sues insurance companies to recoup legal, settlement costs

Over the last 31⁄ years, the NCAA has 2 spent well more than $70 million on outside legal services. Now it is suing a group of insurance companies to try to recover a portion of that money.

In the suit, the NCAA claims it is entitled to coverage of some past and potentially future legal costs as well as a portion of a proposed $209 million settlement it recently reached in one case.

The NCAA’s complaint — in a state court in Indianapolis, where the association is headquartered — was filed in January 2016 against four insurers. A recently updated version added four more companies.

At issue are an array of policies that the NCAA bought in 2005 and from 2012 through 2015 for a combined total of more than $20 million. The policies, according to court filings, were designed to help protect the association against the costs of antitrust or wage-related lawsuits.

The NCAA is facing — or has faced — four such cases that were filed during the years covered by the policies. Between the policies’ prices, their combined coverage limits and the association’s defense and settlement costs, tens of millions of dollars could be at stake.

That might not seem like a lot for an organization that annually takes in roughly $1 billion and has lined up roughly $16 billion in media and marketing rights fees over the next 15 years. But since the beginning of its 2016 fiscal year, Sept. 1, 2015, the NCAA has committed to the proposed $209 million settlement; approved and made a one-time supplemental distribution of $200 million to Division I members that resulted in the liquidation of an endowment fund; and had to count as an expense more than $42.3 million in attorneys’ fees and costs to lawyers representing the plaintiffs in the Ed O’Bannon case (an amount that is on appeal).

As a result, NCAA chief financial officer Kathleen McNeely told USA TODAY Sports in March that the association’s operating reserve — about $114 million, as of Aug. 31, 2016 — is short of the amount she said financial experts recommend for non-profit organizations that don’t have an endowment.

So, from the NCAA’s perspective, aside from the precedent it might have established by not seeking enforcement of coverage to which it believes it’s entitled, “This is not a minimal dispute involving small change,” said University of Virginia law school professor Kenneth S. Abraham, an insurance law expert. “This is a substantial insurance complaint.”

Two of the four cases for which the NCAA is seeking coverage from the insurers involved allegations that the NCAA’s limits on the compensation that athletes can receive for playing sports violate the wage-and-hour provisions of the Fair Labor Standards Act (FLSA). Those cases have been dismissed.

The other two cases, however, are ongoing antitrust actions that constitute a fullon challenge to the association’s relatively new, cost-of-attendance-based compensation limits for athletes. A federal judge recently gave preliminary approval to the proposed $209 million settlement of part of one of those two cases.

The insurance claim dispute primarily centers on whether any of these FLSA or antitrust cases, all of which were filed in 2014 or 2016, are sufficiently similar to an antitrust case that was filed against the NCAA in 2006 and settled about two years later.

If they are sufficiently similar — as the insurance companies contend — the association’s claims for the more recent cases would have to be made under policies it bought in 2005. Those policies provided a maximum of $30 million in coverage, and court filings say those policies not only have been partially tapped, they also allegedly contain provisions that could bar the NCAA from getting any further coverage for the recent cases.

The NCAA contends that the recent cases are different from the one filed in 2006. As such, it says it is entitled to as much as $45 million in coverage for the antitrust suits, which were filed in March 2014, plus additional coverage for the FLSA suits, which were filed in October 2014 and September 2016.

In an amended version of its insurance complaint, filed March 31, the NCAA did not provide any dollar figures for its legal expenses, but it said it has incurred “substantial costs in defending” against the four cases at issue and “will continue to incur additional substantial costs as the lawsuits proceed.”