U-M suit cost already $9 million U-M suit cost already $9 million
University-owned insurance company covering affirmative-action case's legal expenses - most for outside counsel
Friday, March 21, 2003
BY JANET MILLER
News Staff Reporter
The University of Michigan's legal bill for defending its affirmative-action admissions policies has topped $9 million and the meter is still running. Information from Our Advertisers Legal costs have picked up in recent months as preparations have intensified for the two cases that will be heard April 1 by the U.S. Supreme Court.
Between August and January, $611,000 was paid to the three law firms representing U-M. The legal costs are paid by Veritas, the insurance company owned and operated by U-M that exists solely to cover the university's liability insurance needs. Veritas covers lawsuits filed against any university department, including the U-M Health System.
"The lawsuits have been ongoing for five years, and there are two cases, not just one. It would be easy for people to look at $9 million and say that's a lot of money," said Julie Peterson, U-M spokeswoman. "But they are two cases that have national significance over a number of years. That's really a modest amount. The Microsoft antitrust case was a lot more money." By comparison, the tab for the Center for Individual Rights, the law firm based in Washington that filed the lawsuits, is around $4 million, said Curt A. Levey, director of legal and public affairs.
"It's a bit more than we originally planned," Levey said, in part because student intervenors were allowed to join the cases and present their views in favor of the affirmative-action policy. "That added an additional year in discovery." Most of the $9 million spent by U-M has covered the costs of outside counsel, Peterson said.
A small portion has paid for the university's Web page that deals with the lawsuits and for public relations expenses. The $9 million does not include time spent by in-house legal counsel, or by administrators and staff who have spent an extensive amount of time plotting the U-M's public relations approach and response to national media requests.
The university has used outside attorneys from three firms: Butzel Long in Ann Arbor; Wilmer, Cutler & Pickering in Washington; and Latham & Watkins, also in Washington. Maureen Mahoney, a partner with Latham & Watkins, joined the U-M legal team in September. She has won 10 of the 11 cases she's argued before the Supreme Court. U-M Regent Larry Deitch, D-Bingham Farms, said the importance of the issue justifies the cost, which he noted is lower than it might have been because the university received substantial discounts from the outside law firms.
"This is a high-profile issue for Michigan, but we often have to deal with important and visible topics," said Deitch, the board chairman. But Regent Andrea Fischer Newman, R-Ann Arbor, said cost remains an issue. "I am concerned about the cost of the litigation and have raised this concern both publicly and privately over the years," she said.
"The administration is well aware of my feelings on this subject." Veritas Insurance Corp. is a "captive" insurance company - one that is owned and controlled by those who are insured. Veritas covers claims for medical and professional liability, general liability, property damage, worker's compensation and more.
Veritas is based in Vermont because Michigan does not have a law that allows for captive insurance companies, Peterson said. There are no staff members directly employed by Veritas, she said, and U-M contracts with a captive manager that has its own staff. With the exception of an employee of the captive manager who lives in Vermont and serves as secretary of the board, all members of the eight-person Veritas board are U-M employees.
Tim Slottow, U-M's interim chief financial officer, is chairman. Each department at U-M, including the Health System, is charged insurance premiums. "Premiums are paid and the funds are invested. These funds are available for claims," Peterson said. For 2002-03, nearly $32 million in premiums was paid by the university.
That compares with $14 million in claims paid out the previous fiscal year. More than 80 percent of the premiums cover medical malpractice claims. There is a cap on claims, Peterson said, but that cap changes each year depending on the number of claims that have been made against the fund. Claims for the two affirmative-action lawsuits are made against two years: 1994-95, the year in which Jennifer Gratz, one of two people who filed suit against the College of Literature, Science and the Arts, was denied admission; and 1996-97, the year a second undergraduate candidate, Patrick Hamacher, was denied admission and Barbara Grutter was denied admission to the U-M Law School.
Peterson said she didn't know what the cap would be for the affirmative-action defense, but that "we believe the policy limits are adequate for coverage." Deitch said benefits outweigh the costs. "We are often asked about the costs associated with this, yet I think there have been significant benefits. ...
The cases are a logical extension of the university's historic commitment to diversity and people value that leadership. For instance, prospective students tell us that our commitment to diversity is one of the reasons they apply, and donors have supported us with gifts at least in part because of our work in this area."
He cited a $22 million gift for scholarships from donors Rich and Susan Rogel. "They highlighted the university's continued commitment to recruiting a diverse student body as key for our future," Deitch said.
Staff reporter Geoff Larcom contributed to this report. Janet Miller can be reached at jmiller@annarbornews.com or (734) 994-6827.
© 2003 Ann Arbor News. Used with permission Copyright 2003 Michigan Live. All Rights Reserved.
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