That's not what it said either. The insurance company is trying to get out of paying the settlement by intimation that PSU and Paterno knew about this incident. That has not be shown by any evidence whatsoever.
As for the family, based on the actual evidence to date there is little to no indication that Paterno didn't live up to his obligations. There are others for which this is not true. If I were them, I'd be fighting this too. Most everyone commenting has been caught up in the media frenzy, making a lot of assumptions about what a person Kew or didn't and isn't looking at the evidence. The DA cleared Paterno more than once and stated he fulfilled has obligations under the law. You may think that isn't wnough considering the heinous nature of the crimes perpetrated, but it is not that simple in terms of the investigation, prosecution, and contracts involved.
The NCAA version of events has since been torn to pieces.