Bloomberg Law
Free Newsletter Sign Up
Bloomberg Law
Welcome
Go
Free Newsletter Sign Up

Boy Scouts’ $850 Million Abuse Victim Deal Approved by Court (1)

Aug. 19, 2021, 8:28 PMUpdated: Aug. 19, 2021, 9:19 PM

The Boy Scouts of America received court approval to enter into an $850 million settlement addressing more than 80,000 child sexual abuse claims, a key step in the organization’s efforts to emerge from bankruptcy free from the threat of mass tort litigation.

The nonprofit’s choice to settle with lawyers representing abuse survivors is an exercise of reasonable business judgment, Judge Laurie Selber Silverstein of the U.S. Bankruptcy Court for the District of Delaware said during a virtual hearing Thursday.

“I conclude the debtors were sufficiently informed to make this decision,” she said.

Silverstein issued her ruling after a contentious three-day hearing on the Boy Scouts’ restructuring support agreement with abuse claimants. The plan provides victims with $850 million contributed by the Boy Scouts and its nationwide network of local councils, and assigns them the right to tap the organization’s insurance policies.

Attorneys for the Hartford Accident & Indemnity Co. and Chubb Ltd. affiliate Century Indemnity Co. said the deal unlawfully rewrites insurance coverage agreements and provides the blueprints for a reorganization plan that violates bankruptcy law.

But Silverstein said her decision is limited to the Boy Scouts’ ability to enter into the deal with abuse survivors, not the merits of the organization’s Chapter 11 plan.

Limited Ruling

The judge declined to rule on the Boy Scouts’ request to simultaneously back out of an earlier agreement it reached with Hartford in April that would have capped the insurance provider’s liability at $650 million. “You can’t just roll up any relief you want and put it in an RSA,” Silverstein said.

The Boy Scouts tried for months to build support around a plan that included the Hartford settlement, but abuse claimants consistently and firmly called it “dead on arrival,” the Boy Scouts’ attorney, Jessica Lauria of White & Case LLP, said during the three-day hearing.

The insurers and other parties also objected to settlement provisions that allocate up to $10.5 million for plaintiffs’ attorneys’ fees. Silverstein declined to rule on these objections Thursday, saying it would be premature to consider those payments.

Insurers and other opponents of the deal are preparing for a legal battle over whether the Boy Scouts’ reorganization plan—which incorporates the settlement—can be confirmed under the bankruptcy code. The proposed mechanics for distributing proceeds to abuse claimants will be a key focus, as insurers consistently have argued that thousands of claims appear invalid.

A hearing to consider sending the plan out for a creditor vote is scheduled for Aug. 25.

The Boy Scouts filed Chapter 11 in February 2020 to address a tidal wave of sex abuse claims against both the national organization and its local councils that have threatened to bring about their demise.

The organization is seeking to reorganize before the end of the year and stem legal fees that it says have continued to climb $10 million each month in bankruptcy.

The case is In re Boy Scouts of America, Bankr. D. Del., No. 20-10343, hearing 8/19/21.

(Story updated with additional reporting throughout.)

To contact the reporter on this story: Alex Wolf in New York at awolf@bloomberglaw.com

To contact the editors responsible for this story: Laura D. Francis at lfrancis@bloomberglaw.com; Michael Ferullo at mferullo@bloomberglaw.com