The insurer has been providing a defense to Sandusky for the civil action filed in November 2011—shortly after Sandusky was first charged with sex crimes—involving his charity for children with dysfunctional families, according to court documents filed in U.S. District Court for the Middle District of Pennsylvania.

State Farm says it issued a “reservation of rights letter” to Sandusky, which informs a policyholder that an insurer may eventually deny coverage for all or part of the claim.

According to court documents, State Farm began insuring the Sandusky home in State College, Pa. in April 1985. It is primarily a property coverage policy with limited personal liability coverage applying only to bodily injury caused by an occurrence.

The policy “excludes coverage for bodily injury that is intentionally caused by the policyholder” and it does not cover injury due to “willful and malicious acts of the policyholder.”

Penn State and its primary General Liability insurer, Pennsylvania Manufacturer's Association Insurance Co. (PMA), have filed lawsuits against each other over legal expenses. PMA says it has no duty to defend the school.

Penn State and United Educators—reportedly the writer of the university's Educators Legal Liability coverage—are currently not waged in litigation. The insurer may pay the school to take care of certain covered aspects of the policy, but it is doubtful the insurer will be picking up any of the costs related to settlements of civil lawsuits.

Shortly after Sandusky was convicted, Penn State asked victims to participate in a program to resolve Sandusky-related claims against the school.

The funds will likely come from the school's captive insurer, Nittany Insurance.

Yesterday the NCAA fined the Penn State University $60 million and imposed a four-year postseason ban on its football program while reducing the number of scholarships it can issue. The association also stripped former head coach Joe Paterno of all wins from 1998 to 2011.

An independent investigation by a firm led by Louis Freeh, former director of the FBI, concluded that “in order to avoid the consequences of bad publicity, the most powerful leaders at Penn State University (including Paterno) repeatedly concealed critical facts relating to Sandusky's child abuse from the authorities, Board of Trustees, Penn State community and the public.”

State Farm Pulls Sponsorship

State Farm spokeswoman Arlene Lester confirms the insurer has decided to stop its sponsorship of the football program at Penn State. “This includes pulling signage and radio ads for home games,” she says in an email.

State Farm will continue to sponsor other sports program at the university, such as basketball, and it will keep backing NCAA football countrywide, Lester adds.