The U.S. Court of Appeals for the Third Circuit issued a split decision in a case involving two sets of insurers objecting to the Boy Scouts of America’s $2.46 bn sexual abuse settlement, according to BestWire.
The Boy Scouts emerged from Chapter 11 bankruptcy in 2023 after the court denied a request from a group of insurers to pause the settlement.
The recent ruling continues that legal process, involving insurers that chose not to participate in the agreement.
One group of insurers—Liberty Mutual Insurance, Old Republic Insurance, and several companies from American International Group —argued that the settlement harmed their rights and defenses under their policies.
They also said the proposal was made in bad faith. These insurers asked the court to add language to the settlement plan to protect their positions.
The court disagreed. It said the plan does not change their policy terms or legal defenses. The settlement order also clearly states that the plan does not modify or supplement policy language for insurers that did not join the agreement.
The court rejected the bad faith claim, saying it was essentially the same argument already addressed under the rights-preservation issue.
A separate group of insurers, including Allianz Global Risks US Insurance Co., challenged the settlement for limiting their ability to recover defense costs and pursue excess liability claims they would have had without the bankruptcy.
The court agreed with this part of the appeal. It found that the settlement improperly blocked these insurers from seeking compensation they would have otherwise pursued against the settling carriers.
The court also reviewed an appeal from 140 abuse victims who tried to cancel the plan. They argued that it included illegal releases by allowing insurers to avoid future claims, even from victims who did not agree to the settlement.
To address this, the Allianz group requested an amendment to make sure they can still seek recovery from the settlement trust instead of from the settling insurers.
The court denied that request, stating that the plan had already been implemented and it was too late to reverse the full agreement.
As of April 2023, the settlement trust has paid over $138 mn to about 20,000 abuse victims, according to the Boy Scouts.
