(USA Herald) - In a recent Chapter 11 appeal, insurers are alleging that the Boy Scouts of America's bankruptcy plan was not proposed in good faith. Attorneys representing the insurers argue that the plan impermissibly changes their rights under the policies that were issued to the organization for the purpose of covering sexual abuse liability. The appeal was heard in Wilmington, Delaware and Theodore J. Boutrous Jr., the insurer's attorney from Gibson Dunn & Crutcher LLP, stated that the bankruptcy judge committed a legal error when confirming the $2.5 billion settlement and Chapter 11 plan.

According to Boutrous, the judge did not examine the overall circumstances surrounding the drafting and proposing of the plan to pay sexual abuse claimants. This includes the "explosion of claims" that the Boy Scouts faced after the bankruptcy case was initiated in February 2020. The number of abuse claims skyrocketed to 82,000 by the time the bar date arrived, and Boutrous pointed to testimony from the debtor's own experts that concluded that a significant portion of the claims wouldn't withstand scrutiny. The attorney also stated that the Boy Scouts did not take any measures to weed out potentially invalid claims, instead using the large number of abuse claims to apply pressure to the nonsettling insurers to change their stance and agree to the settlement fund.

The confirmed plan also includes significant differences in the treatment of the insurers' contractual rights, according to Boutrous. This includes the elimination of the right of the insurers to defend against claims that implicate their policies, as well as the obligation of the Boy Scouts to cooperate in these defense efforts. Under the plan, the settlement trustee overseeing the $2.5 billion fund and the claims adjudication process is supposed to receive the insurers' rights, as well as the Boy Scouts' obligations, but Boutrous argues that the settlement trustee will have all the power, while the insurers will be unable to act.

In response, Boy Scouts attorney Glenn M. Kurtz from White & Case LLP stated that the bankruptcy court did examine all of the circumstances and entered findings supporting the good faith of the debtor. Kurtz added that there is no evidence to support the claim that any claims are invalid. The trust distribution procedures, according to Kurtz, include guardrails to prevent invalid or bad faith claims from being approved. The bankruptcy court, he says, heard weeks of testimony, reviewed over 1,000 exhibits, and heard six days of closing arguments before issuing a 260-page opinion that addressed all of the issues raised by the insurers.

The appeals arguments will continue on Friday, with the parties addressing issues surrounding a channeling injunction and third-party releases included in the plan. The Boy Scouts of America filed for bankruptcy three years ago due to hundreds of claims for childhood sexual abuse stretching over several decades. After an advertising campaign led by plaintiffs' attorneys, the number of asserted claims increased to 82,000. A Delaware bankruptcy judge confirmed a plan in September that featured settlements with some large insurers and groups representing thousands of claimants to fund a $2.5 billion settlement pot.

The appeals from over a dozen nonsettling insurers were consolidated in the Delaware district court, and are being represented by numerous law firms, including Gibson Dunn & Crutcher LLP and Fineman Krekstein & Harris PC. On the other hand, the Boy Scouts are being represented by Morris Nichols Arsht & Tunnell LLP and White & Case LLP.

Investigative reporter, Samuel Lopez, from the USA Herald, has been closely following the case and notes that the insurers' accusations of bad faith raise questions about the validity of the confirmed plan and the impact it may have on both