An attorney for some insurance companies that may be liable for child sexual abuse claims against the Boy Scouts of America asked a judge on Thursday to overturn the organization’s bankruptcy plan, claiming collusion with claimants’ lawyers to pressure insurers into settlements.
According to Ted Boutros, an attorney who represents non-settling insurers, the reorganization plan was not proposed in good faith and improperly strips non-settling insurers of their rights to contest the claims.
“All we’re asking for is fairness,” Boutros told U.S. District Court Judge Richard Andrews, who began hearing arguments in appeals by certain insurers and sexual abuse claimants.
In September, U.S. Bankruptcy Judge Laurie Selber Silverstein approved a $2.46 billion reorganization plan that would allow the Boy Scouts of America, headquartered in Irving, Texas, to continue operations while compensating tens of thousands of men who claim they were sexually abused as children while involved in Scouting.
More than 80,000 men have filed claims alleging that troop leaders abused them as children across the country. Opponents of the plan claim that the staggering number of claims, when combined with other factors, indicates that the bankruptcy process was manipulated.
“We know that a large portion of them are not legitimate claims,” Boutros said, referring to a statement made by one of the BSA’s own experts. Boutros also mentioned that a plaintiffs’ attorney admitted that due to the passage of time, approximately 58,000 claims could not be pursued in civil lawsuits.
When it filed for bankruptcy in February 2020, the BSA had been named in approximately 275 lawsuits and had informed insurers of another 1,400 claims. According to plan opponents, the massive number of claims filed in the bankruptcy was the result of a nationwide marketing effort by personal injury lawyers working with for-profit claims aggregators to drum up clients.
The largest insurers for the BSA reached settlements for a fraction of the billions of dollars in potential liability exposure they faced. Other insurers refused to settle, despite the fact that many of them provided excess coverage above the liability limits of the underlying primary policies. They claim that the procedures for distributing funds from a proposed compensation trust would violate their contractual right to contest claims, would set a dangerous precedent for mass tort litigation, and would result in grossly inflated payments.
Glenn Kurtz, an attorney for the Boy Scouts, told Andrews that opponents must show that Silverstein made a “clear error” in approving the plan, but they are not challenging any of her factual findings.
“To be honest, neither the insurers nor the court have identified a single finding by the court that could support an ultimate conclusion of bad faith,” he said.
The BSA would contribute less than 10% of the proposed settlement fund under the plan, which is described as a “carefully calibrated compromise” by the BSA. Local BSA councils, which run day-to-day troop operations, offered to contribute at least $515 million in cash and property in exchange for certain safeguards for local troop sponsoring organizations, such as religious organizations, civic associations, and community groups.
The majority of the compensation fund would come from the BSA’s two largest insurers, Century Indemnity and The Hartford, which agreed to contribute $800 million and $787 million, respectively, in settlements. Other insurers have agreed to contribute approximately $69 million.
Opponents of the plan argue that the BSA is contractually obligated to assist insurers in investigating, defending, and settling claims, just as it did before the bankruptcy.
They claim that, desperate to avoid bankruptcy, the BSA conspired with claimants’ lawyers to inflate both the volume and value of claims in order to pressure insurers into large settlements, and then transferred its insurance rights to the settlement trust. The insurers argue that if the BSA transfers its rights to the settlement trustee under insurance policies, it must also transfer its obligations under those policies.
Attorneys for the Boy Scouts and plan supporters say the trustee will assume the BSA’s obligations under the insurance policies, subject to the bankruptcy plan and “applicable law.” Non-settling insurers argue that the language creates too much uncertainty about their rights and how much discretion the retired bankruptcy judge who would oversee the settlement trust is given.
Attorneys for abuse survivors will argue before Andrews on Friday that the plan contains improper liability releases that prevent them from suing non-debtor third parties such as local BSA councils, BSA insurers, and troop sponsoring organizations.