The US Court of Appeals for the Third Circuit issued a divided ruling involving two sets of insurers challenging the Boy Scouts of America’s $2.46 billion sexual abuse settlement.
The court rejected one group’s objections while siding with another on specific contract rights.
The decision stems from the continuation of an appeal filed by insurers who did not participate in the 2023 settlement agreement, which followed the Boy Scouts' exit from Chapter 11 bankruptcy. That agreement had been previously upheld by the courts despite opposition from certain carriers.
Liberty Mutual Insurance Cos., Old Republic Insurance Co., and several units of American International Group Inc. were among the insurers that argued the settlement impaired their rights and defenses under policies they had issued.
They also alleged the deal was proposed in bad faith and sought to amend the plan to include explicit language preserving their rights under those contracts.
The Third Circuit denied these claims. The court said that the settlement plan does not alter the non-settling insurers’ contractual rights, and emphasized that the plan includes language confirming that the terms of the relevant policies remain unchanged. The panel also dismissed the bad faith argument, characterizing it as a restatement of the rights-preservation issue.
In contrast, a separate group of insurers led by Allianz Global Risks US Insurance Co. prevailed in part. These carriers objected to provisions of the settlement order they said released their ability to recover defense costs and excess liability payments – rights they claimed would have existed outside of bankruptcy.
The court agreed, finding that the plan improperly eliminated the Allianz group’s rights to pursue those claims. The carriers had requested an amendment to the order to clarify that their rights to recover from the settlement trust, rather than from the settling insurers, were preserved.
In addition to the insurer appeals, the court also considered a challenge brought by 140 abuse claimants. These individuals objected to the settlement’s inclusion of nonconsensual third-party releases, which they said improperly prevented them from bringing future claims against settling insurers without their consent.
The Third Circuit rejected this appeal, noting that the settlement plan has already been implemented and that it was too late to reverse it.
Since the plan’s approval in April 2023, the Boy Scouts of America stated that the settlement trust has distributed more than $138 million to roughly 20,000 abuse claimants.
The Scouts are not the only major organization facing this kind of legal trouble. Earlier this year, the Diocese of Trenton has filed a lawsuit against Chubb and its subsidiaries, along with other insurance providers, alleging that they have refused to pay claims related to sexual abuse cases brought under the New Jersey Child Victims Act.
The lawsuit claims the insurers have declined coverage for claims filed against the diocese, adding to ongoing legal disputes over coverage obligations in similar cases.
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