Opposing insurers challenge proposed BSA reorganization plan

Apr 7, 2022, 6:00 PM | Updated: 6:48 pm

DOVER, Del. (AP) — Insurance companies challenging the Boy Scouts of America’s bankruptcy plan argued Thursday that it “eviscerates” their defense rights under policies they issued and would mean grossly inflated payments of sexual abuse claims, including tens of thousands otherwise barred by the passage of time.

The arguments came on the second day of closing arguments before a Delaware judge who must decide whether to approve the reorganization plan the BSA has negotiated to compensate tens of thousands of men who say they were sexually abused as children in Scouting, while allowing the Boy Scouts to continue as an ongoing enterprise.

The Boy Scouts, based in Irving, Texas, petitioned for bankruptcy protection in February 2020, seeking to halt hundreds of individual lawsuits and create a settlement trust for abuse victims. Although the organization faced about 275 lawsuits at the time, more than 82,000 sexual abuse claims have been filed in the bankruptcy case.

The reorganization plan calls for the Boys Scouts and its 250 local councils, along with settling insurance companies and troop sponsoring organizations, to contribute some $2.6 billion in cash and property and assign their insurance rights to a settlement trust fund for abuse victims. More than half that money would come from the BSA’s two largest insurers, Century Indemnity Co. and The Hartford. Those companies would contribute $800 million and $787 million, respectively.

In exchange for those contributions, those parties would be released from further liability for sexual abuse claims dating back decades.

But several other insurance companies, many that issued excess coverage polices to the BSA, are opposing the plan. They argue, among other things, that the proposed “base matrix,” or starting claim values for various types of abuse — ranging from penetration to abuse not involving physical contact — are not consistent with the BSA’s pre-bankruptcy abuse settlements and litigation results, as the Boy Scouts and plan supporters contend.

Richard Doren, an attorney for non-settling insurers, noted Thursday that the BSA’s own expert found that the average pre-bankruptcy settlement value for a penetration claim involving a one-time abuser was $212,500, and that about 90% of penetration claim settlements before the bankruptcy were for $300,000 or less.

Nevertheless, the BSA expert, Charles Bates, has estimated the value of a penetration claim in the bankruptcy case to be between $600,000 and $2.7 million.

“The base matrix amounts are inflated across the board and have no basis in reality,” Doren said.

Doren noted that Bates has testified that the base matrix assumes a high degree of institutional responsibility by the BSA that would not be present in single-victim abuser claims. Bates concluded that about 87% of the claims involve allegations of a single abuser, and should be discounted by an average of 90%, Doren said. Such a discount would result in a typical value for a single-abuser penetration claim of $60,000, not $600,000.

The opposing insurers also take exception to the trust distribution procedures, or TDPs, for evaluating and paying claims, and the findings that the BSA and plan supporters are asking the judge to make. They fear that the procedures and findings would result in individual awards that would be binding on insurers and would set a precedent that tort lawyers would use to their advantage in future coverage litigation and try to extend to other court cases.

“This idea of binding TDPs or litigated TDPs is a ‘Holy Grail’ that the mass tort lawyers have been chasing for many years, and it has never been approved,” Doren said, quoting from a July 2021 email sent by a claimants attorney who opposed a previous version of the BSA’s plan but supports the current version.

“In this case, your honor, the claimants groups are in fact pursuing that Holy Grail, with an assist from the debtors,” Doren said. “The plan before this court fails to properly preserve the certain insurers’ contractual rights and in fact contains unnecessary and prejudicial findings.”

Judge Laura Selber Silverstein has herself repeatedly questioned plan supporters on what provisions of the bankruptcy code would apply to the findings they want her to make.

Among those requested findings is that the plan was proposed in good faith, and that the procedures for compensating victims provide for a fair and equitable settlement of their claims. The BSA and plan supportes also want Silverstein to find that the proposed starting claim values for various types of abuse — ranging from penetration to abuse involving no physical contact — are based on, and consistent with, the BSA’s pre-bankruptcy abuse settlements and litigation results.

“I’ve never had a confirmation hearing that had these kinds of contested findings in them,” Silverstein said near the end of Thursday’s hearing. “…. It runs contrary to the way I normally make findings, which is hear the evidence and I make the findings based on the evidence I hear. Nobody tells me what findings to make.”

Closing arguments resume Monday.

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Opposing insurers challenge proposed BSA reorganization plan