By Laura J. Henneman of Segal McCambridge Singer and Mahoney, Ltd.
In a recent ruling, the Court of Appeals of Indiana upheld the granting of summary judgment in Appellee-Defendant Insurers’ favor and against the Appellant-Plaintiff NCAA in an insurance coverage dispute brought by the NCAA. In NCAA v. Ace Am. Ins., 2020 Ind. App. LEXIS 298, the appellate court reviewed and upheld the trial court’s holding that the “Related Wrongful Acts Exclusion” in the NCAA insurance policies bars coverage in the Jenkins lawsuit.
The dispute involves two underlying actions, White v. Nat’l Collegiate Athletic Ass’n, Case No. CV06-0999 (C.D. Cal.) and Jenkins, et al. v. Nat’l Collegiate Athletic Assoc., 2016 U.S. Dist. LEXIS 103703. Both cases involve the NCAA’s “grant-in-aid” or “student-athlete scholarships” cap that is imposed on member institutions per the NCAA’s Bylaws. Prior to the White case, the NCAA’s grant-in-aid was limited to only tuition and fees, room and board, and required books. This grant-in-aid was less than the actual cost of attendance as it did not take into account other costs associated with attending an institution, such as supplies and transportation. Additionally, member institutions could not offer student-athletes health insurance or accident insurance and grants-in-aid could only be offered for a single year.
The White plaintiffs, male college football and basketball players who received athletic based grants-in-aid between February 2002 and the date of the White judgment, put forth an antitrust theory arguing that without the NCAA’s grant-in-aid cap in place, member institutions would increase the amount of financial aid available to student athletes so that the full cost of attendance would be covered. They sought the elimination of the current grant-in-aid cap, damages on the financial aid payments covering the full cost of attendance, and an injunction stopping the NCAA from enforcing the current grant-in-aid cap at an amount that does not cover the full cost of attendance. Following settlement of the case in 2008, the NCAA changed its grant-in-aid cap, which lessened the cost of attendance gap between the value of a scholarship and the actual cost of attending the institution. Additionally, the NCAA created a fund available to student-athletes with financial needs which allowed institutions to provide a variety of benefits to student-athletes, and did away with its rule that institutions were prohibited from offering student-athletes health or accident insurance.
In 2014, Jenkins, another class action lawsuit against the NCAA, was filed by two classes consisting of Division 1 football and basketball players who had or planned to receive a full grant-in-aid scholarship or an offer for a grant-in-aid scholarship. The Jenkins plaintiffs alleged that the NCAA’s restrictions on how much member institutions may compensate their student-athletes for “their services” was a blatant violation of antitrust laws and asserted that such caps have no legitimate pro-competitive justification. The Jenkins plaintiffs sought to enjoin the NCAA from imposing any restrictions on the amount of money or other benefits that a member institution, or anyone else, may offer to student-athletes. The Jenkins plaintiffs took issue with certain NCAA Bylaws, including Bylaws 1, 13, 15, and 16, which they claimed were illegal under the Sherman Act.[1]
The issue on appeal in NCAA v. Ace Am. Inc., was whether the “Related Wrongful Act Exclusion” in the NCAA’s 2012-2014 insurance policy barred the insurers’ obligation of coverage in the Jenkins action. The “Related Wrongful Act Exclusion” provides that the insurer is not liable to make any payment for a loss in connection with a claim made against the insured alleging, arising out of, based upon, or attributable to the facts alleged or contained in any previously reported claim. The policy defined “Related Wrongful Act” as wrongful acts which are the same, related or continuous, or wrongful acts which arise from a common nucleus of facts regardless of whether such claims involve the same or different claimants or legal causes of action. In April of 2014, insurer XL denied coverage to the NCAA for Jenkins finding that the Jenkins case involved the same wrongful acts or related wrongful acts as those at issue in the White case. As support for its position, XL stated that both suits challenged the limitation of the amount of grant-in-aid provided to Division 1 men’s football and basketball players and that the NCAA had unlawfully agreed with other entities to cap the financial aid provided to student-athletes. Following suit, the excess policy insurers also denied coverage to the NCAA in Jenkins for these same reasons.
In response, the NCAA filed a declaratory judgment and damages claim against XL and the excess policy insurers in January of 2016. The trial court entered partial summary judgment in favor of the defendant insurers holding that the Related Wrongful Acts provision of the 2014-2016 insurance policy was not ambiguous and that the White and Jenkins claims are against the same wrongful act — the enforcement of NCAA Bylaws 15 and 16.
Upon upholding the trial court’s decision and affirming the granting of summary judgment in the defendant insurers’ favor, the Indiana appellate court analyzed Indiana precedent related to the interpretation of exclusion clauses, including pollution exclusion clauses, and the meaning of the word “related.” The NCAA argued that the exclusionary language contained in the 2014-2016 policy was overbroad and ambiguous and went against Indiana precedent where courts found coverage was appropriate where policy language was not specific. The appellate court found these arguments to be without merit and noted that it is well-established under Indiana law that insurance policy language is to be assessed on a case-by-case basis. The court analyzed the definition of the word “related” and noted that Indiana courts have previously found that the word “related” is a commonly understood term in everyday language and is therefore not ambiguous. The appellate court concluded that the Related Wrongful Act exclusion in the 2014-2016 primary insurance policy was not ambiguous or overbroad and held that White and Jenkins presented related claims alleging violations of the Sherman Act through the NCAA’s enforcement of its Bylaw 15 which served to cap student-athlete compensation. The court held that the lawsuits “stem from a common nucleus of facts — the scholarship scheme imposed on student-athletes.” As such, the court found that the Jenkins case was excluded from coverage under the 2014-2016 insurance policy.
Laura Henneman is an Associate Attorney at the Chicago office of Segal McCambridge Singer and Mahoney, Ltd. where she has litigated a wide variety of cases since joining the firm in 2015. Laura is also a member of the firm’s Sports, Recreation and Entertainment Practice Group. Outside of her firm, Laura serves as a Guardian ad Litem for children in problematic guardianship cases through the Chicago Volunteer Legal Services and is an active member of the Women’s Bar Association of Illinois.
[1] Although not discussed in NCAA v. Ace Am. Ins., on May 18, 2020, the Ninth Circuit Court of Appeals affirmed the Northern District of California’s order in the Jenkins case enjoining the NCAA from enforcing rules that restrict the education-related benefits that its member institutions may offer student-athletes.
