Boy Scouts bankruptcy update: Settlement OK'd by judge, but amounts for survivors still unknown

Cara Kelly

Boy Scouts of America is one step closer to a plan to get out of bankruptcy after a Delaware judge on Thursday signed off on a $850 million settlement agreement the organization reached last month with a majority of attorneys for sex abuse claimants in the case. 

Judge Laurie Silverstein rejected two pieces of the agreement: a request by Boy Scouts to back out of an earlier agreement with one of their largest insurers, the Hartford; and payment for professional fees for attorneys with the Coalition of Abused Scouts for Justice, a group of 27 law firms representing 60,000 abuse claimants.

Silverstein said the parties can opt to move forward on the agreement without those two pieces, or not. Jessica Lauria, an attorney for Boy Scouts, said they would decide quickly.

At a hearing scheduled for next week, Silverstein is expected to review the Scouts' latest plan for reorganization — the next milestone in the case. If approved, it would go out for a vote to claimants.

The $850 million settlement has been praised as the largest for sex abuse claims in U.S. history. Yet, a USA TODAY analysis of the agreement as well as Boy Scout’s latest plan reveals significant holes that make it difficult for victims to know how their claims will be handled and how much they're worth.

All of that leaves a steep hill for Boy Scouts to climb to get out of bankruptcy quickly — something the organization has repeatedly said it needs to do to remain solvent. 

“This is kind of like a plan for a plan,” said Marie T. Reilly, a professor at Penn State Law. 

Reilly has analyzed the outcomes of Catholic diocese bankruptcies and said that the Scouts' plan has particularly extensive unresolved issues, even compared with the larger diocesan cases. 

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Jason Amala, an attorney with Pfau Cochran Vertetis Amala PLLC – which represents more than 1,000 sex abuse victims in the case – agreed, adding that typically at this point claimants "can take a look at the plan and have a rough sense of how they’re going to do."

"Right now, nobody can read this plan and have any sense of how they’re going to do," said Amala, who also has represented abuse claimants in diocesan cases. 

Amala is among a handful of attorneys objecting to the agreement. He said too much remains unknown, including how much each local council will contribute to the victims' trust, and if that amount matches their level of liability. 

Insurance companies who hold Boy Scout policies have been the most outspoken objectors. Roughly 18 insurance companies hold policies for Boy Scouts dating back decades. The terms of those policies are expected to cover much of the Scouts' liability from sex abuse claims. They represent one of the largest assets in the case, and one of the biggest points of contention.

In April, Boy Scouts reached a $650 million settlement agreement with Hartford. In recent hearings, however, Scouts attorney Jessica Lauria said it's become clear that none of the abuse claimants would vote for a plan that includes the agreement and asked the judge to let them abandon it as part of the new deal. 

Silverstein said the question wasn't properly posed, and rejected it. 

Attorneys for Hartford and other insurers have argued against Boy Scouts' new plan, which doesn't include the $650 million settlement, saying it flouts bankruptcy law by inflating the cost of claims and leaves insurers with the bill. 

At issue is whether claims that are time-barred under statute of limitations will be eligible for payouts. In many states, victims are barred from filing lawsuits over abuse after a period of time; however, laws in roughly two dozen states have changed in recent years.

Under the Boy Scouts' plan, claimants who live in states with restrictive statutes of limitations will be dinged an unspecified amount, or they can take an expedited payment of $3,500. Insurers argue that any plan requiring them to pay those claims violates both their policies and bankruptcy code because they wouldn't be viable lawsuits in civil court. 

"Bankruptcy shouldn’t change the outcome when it comes to insurance," Philip D. Anker, an attorney for Hartford, said during the hearing. "It also shouldn’t increase liability."

Without insurers onboard, it remains unclear how the plan would get anywhere close to Boy Scouts' own estimation of the value of the claims, which they say is between $2.4 billion and $7.1 billion. In a footnote, Scouts acknowledged the settlement reached with victims attorneys will only cover 10% to 30% of the total value.

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Also unclear is the role of thousands of charter organizations – the religious and civic groups that sponsor Scout troops -- which have largely been left out of discussions. 

Objections from Catholic and Methodist chartered groups, which represent about a third of current Boy Scout members, were nearly as heated as those from insurers, warning that such a plan "incentivizes chartered organizations to abandon Scouting." 

"If a sufficient number of chartered organizations terminate their relationships with the debtors, then it is unlikely the (Boy Scouts) will be able to meet their financial obligations under the proposed plan," the objection said. 

In her ruling Thursday, Judge Silverstein also rejected a provision to cover attorneys’ fees for the Coalition. Those fees wouldn't typically be covered under bankruptcy law because the group is not the official committee representing claimants. The proposed settlement, however, agrees to pay up to $10.5 million in fees already incurred and $950,000 a month going forward.  

A U.S. Trustee, charged by the federal government with oversight of the bankruptcy system, objected to the provision, noting the payments will further reduce the amount of money going to the abuse claimants.  

In her ruling, Silverstein echoed the same: "Any funds diverted from abuse victims, especially for their lawyers, needs to be closely examined."

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