What’s at Stake in $850M Boy Scouts Bankruptcy Plan Opposed by Insurers

The Boy Scouts of America sought bankruptcy protection in February 2020 to halt thousands of lawsuits by men who said they were molested as youngsters by Scoutmasters or other leaders. The filing was part of an attempt to reach a global resolution of abuse claims and create a compensation fund for victims. The Boy Scouts recently announced an $850 million agreement with key constituencies, but not all parties in the case are on board. A judge began hearings last Thursday to decide whether to approve the agreement, which could result in a new reorganization plan for the Texas-based Boy Scouts.

There are still plenty of issues to be resolved and no guarantee that the 111-year-old organization won’t be forced to liquidate its assets and cease to exist. Here’s a look at where the case stands.

THE AGREEMENT

The $850 million agreement includes the national Boy Scouts organization, the roughly 250 local Boy Scout councils, the official victims committee appointed by the bankruptcy trustee, attorneys separately representing 70,000 of the sex abuse claimants, and lawyers representing victims who might file future claims.

The Boy Scouts have proposed contributing up to $250 million in cash and property to the victims fund. Local councils, which run day-to-day operations for Boy Scout troops, would contribute $600 million. In addition, the national organization and local councils would transfer their rights to Boy Scout insurance policies to the victims fund. In return, they would be released from future liability for abuse claims.

GROUPS OPPOSING THE SETTLEMENT

Three key groups are opposed to the tentative agreement: troop sponsors such as churches, schools, and civic organizations; insurance companies that cover the Boy Scouts and local councils; and victims attorneys who are at odds with other law firms representing the majority of abuse claimants.

Churches/Schools/Civic Groups

These roughly 41,000 sponsoring organizations are the lifeblood of the Boy Scouts. They also are defendants in many sex abuse lawsuits.

The Church of Jesus Christ of Latter-day Saints was the largest troop sponsor until it ended the partnership in January 2020. Attorneys for the church have objected to the tentative agreement. They say the plan allows victims to pursue lawsuits against sponsoring organizations after the bankruptcy, while stripping them of the insurance policies that could be used to defend themselves.

An attorney representing the United Methodist Church, which is currently the largest Boy Scouts sponsoring organization, said recently that the current plan threatens “the very future” of the Boy Scouts. “What organization would choose to do business with the Boy Scouts being treated like this going forward?” he asked.

Insurance Companies

The dispute over insurance proceeds to pay sex abuse claims is the most contentious issue in the bankruptcy case.

The Boy Scouts initially estimated that up to 5,000 victims would seek compensation from the proposed settlement fund. Instead, more than 82,000 abuse claims are before the court.

Insurance companies say the passage of time appears to have invalidated tens of thousands of abuse claims, while thousands more claims lacked information that is essential to determining their validity. They have attributed the huge number of complaints to aggressive advertising by attorneys working with for-profit claims aggregators and electronically signing claim forms, sometimes several hundred a day.

The insurance companies argue that the current reorganization plan unlawfully strips them of their rights to question claims and improperly allows the trustee overseeing the victims fund to determine what they owe. They also question a provision allowing expedited payments of $3,500 to resolve abuse claims, no questions asked.

One company, The Hartford, agreed to pay $650 million into the victims fund in exchange for being released from any further obligations. But the Boy Scouts are seeking to back out of that deal, which was signed in April, because victims attorneys say their clients will never support a reorganization plan that includes it.

Dissenting Victims Attorneys

The vast majority of the alleged victims, about 70,000 people, are represented by various law firms that support the agreement, including several affiliated with a group called the Coalition of Abused Scouts for Justice. The coalition has dominated the flow of the case, even though there is an official victims committee appointed by the U.S. bankruptcy trustee.

Thousands of other alleged abuse victims, however, are represented by law firms that don’t support the agreement. Among other issues, they want local councils to contribute more than $600 million to the victims fund.

Regardless of what their attorneys think, however, it is the abuse survivors themselves who will ultimately determine with their votes whether a reorganization plan is approved.

TIMELINE

If the judge approves the $850 million agreement, she will then hold a hearing starting Aug. 25 to decide whether to approve a disclosure statement that explains and outlines an updated Boy Scouts reorganization plan. Approval of the disclosure statement is required before ballots can be sent to abuse survivors to vote on the plan. The judge will hold a separate hearing in the fall to determine whether to approve the plan itself.