(Article from Insurance Law Alert, April 2023)
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Holding
A Delaware district court upheld the Chapter 11 reorganization plan of the Boy Scouts of America, which provided for a $2.5 billion settlement trust to compensate tens of thousands of sexual abuse claimants. In re Boy Scouts of America and Delaware BSA, LLC, 2023 U.S. Dist. LEXIS 53884 (D. Del. Mar. 27, 2023).
Background
Facing a wave of sexual abuse claims, the Boy Scouts of America filed for bankruptcy. Last year, following a series of evidentiary hearings, a federal bankruptcy judge confirmed the plan, deeming it “fair and equitable.” The plan included a settlement between several insurers and claimant groups that would help fund the $2.5 billion trust. In particular, the plan contemplated that the settling insurers will buy back policies issued to the Boy Scouts of America through a $1.6 billion contribution to the fund. The plan also required contributions from the Boy Scouts of America and its local charters in exchange for an injunction that channeled existing and future abuse claims to the settlement trust and a release of liability. More than a dozen non-settling insurers (as well as certain claimant groups) appealed the plan. One objection to the plan was its alleged failure to include adequate measures to verify the legitimacy of the sexual abuse claims.
Decision
In upholding the plan, the district court held that the non-settling insurers had not shown clear error in the decision confirming the plan. Among other things, the court found no clear error in the overall monetary value of abuse claims or in the bankruptcy court’s determination that the plan was proposed in good faith. The court also upheld the bankruptcy court’s finding that it had jurisdiction over claims relating to the injunction and releases of liability. In that context, the court noted the bankruptcy court’s “residual authority” to approve of plans based on various statutory provisions, even if not expressly stated in the Bankruptcy Code.
Comments
The plan, which represents the largest sexual abuse settlement in U.S. history, not only establishes the $2.5 billion trust, but also potentially implicates $4 billion in policy limits from insurers that were not parties to the settlement, and assets that have not been liquidated. On March 31, certain insurers filed an emergency motion for a stay pending appeal of the decision. The insurers argued that the case presents “fundamental questions of bankruptcy law of vital importance that could have widespread impact in mass tort bankruptcies for years to come.” This month, the Third Circuit denied the motion, pending resolution of all appeals.