Insurance lawyer asks judge to cancel Boy Scouts of America bankruptcy plan

A lawyer for some insurance companies that may be responsible for child sexual abuse claims against the Boy Scouts of America on Thursday urged a judge to cancel the organization’s bankruptcy plan, arguing that the plaintiffs’ lawyers were colluding to pressure insurers to reach a settlement.

Ted Boutros, an attorney representing non-settling insurers, said the reorganization plan was not proposed in good faith and improperly deprives non-settling insurers of their rights to challenge claims.

“We’re just asking for justice,” Boutros told U.S. District Court Judge Richard Andrews, who began hearing arguments in appeals from some insurance companies and sexual assault claimants for two days.

In September, U.S. Bankruptcy Judge Lori Selber Silverstein approved a $2.46 billion reorganization plan that would allow the Irving, Texas-based company to Boy Scouts of America continue to work by compensating tens of thousands of men who say they were sexually abused as children while participating in Scouting.

More than 80,000 men have filed allegations that they were abused as children by military commanders across the country. Opponents of the plan say the staggering number of claims, combined with other factors, suggests the bankruptcy process has been manipulated.

“We know that many of these are not legitimate claims,” Boutros said, referring to a statement made by one of the BSA experts. Boutros also noted that the plaintiffs’ lawyer acknowledged that about 58,000 claims likely could not be considered as civil suits due to time lapse.

When BSA filed for bankruptcy protection in February 2020, BSA was involved in approximately 275 lawsuits and told insurers that it was aware of another 1,400 claims. The massive number of bankruptcy lawsuits filed was the result of a nationwide marketing effort by personal injury lawyers working with commercial claims aggregators to attract clients, opponents of the plan say.

Major BSA insurers have agreed to settle a billion-dollar share of the potential liability they face. Other insurers, many of which had provided excess coverage beyond the liability limits of the main underlying policies, refused to settle. They contend that the disbursement procedures for the proposed compensation fund would violate their contractual rights to challenge claims, set a dangerous precedent for mass tort claims, and result in grossly inflated payments.

Glenn Kurtz, an attorney for the Boy Scouts, told Andrews that opponents must show that Silverstein made a “manifest error” in approving the plan, but they do not dispute any of her factual conclusions.

“Honestly, neither in their filings nor today have the insurers identified a single court finding that could support the final finding of bad faith,” he said.

Under the plan, which the BSA describes as a “carefully crafted compromise”, the BSA itself will contribute less than 10% of the proposed settlement fund. Local BSA councils, which handle day-to-day operations for the troops, have offered to contribute at least $515 million in cash and property, subject to certain guarantees for local troop-sponsoring organizations, including faith-based entities, civic associations and community groups.

The majority of the compensation fund will come from BSA’s two largest insurers, Century Indemnity and The Hartford, who have reached a settlement for $800 million and $787 million, respectively. Other insurers agreed to contribute about $69 million.

Insurers opposed to the plan argue that the BSA is contractually obligated to assist them in investigating, defending and settling claims, as they did before the bankruptcy. They say the BSA, desperate to avoid bankruptcy, colluded with the plaintiffs’ lawyers to inflate both the scope and cost of claims to pressure insurers to pay heavily, and then transferred its insurance rights to an insurance fund. Insurers argue that if BSA transfers its rights under insurance policies to a trustee, it must also transfer its obligations under those policies.

Boy Scouts lawyers and plan proponents say BSA’s obligations under insurance policies are being transferred to a trustee — under the “applicable law” bankruptcy plan. Non-settlement insurers argue that the wording creates too much ambiguity about their rights and how much leeway is given to the retired bankruptcy judge who will supervise the settlement trust.

On Friday, Andrews will hear arguments from lawyers for victims of abuse who say the plan contains wrongful waivers that make it impossible for them to sue non-debtor third parties, including local BSA councils, BSA insurers and troop sponsors.