WILMINGTON, Del. (Legal Newsline) - Insurance companies that will pick up most of the $1 billion tab for the sexual-abuse scandal that has overtaken the Boy Scouts of America are scheduled to face off tomorrow against plaintiff lawyers who filed tens of thousands of claims that insurers say were poorly investigated and potentially fraudulent.
Insurers have asked a federal bankruptcy judge in Delaware to order an investigation into claims filed on the eve of a Nov. 16 deadline, some by lawyers who signed hundreds of claims an hour without providing essential information such as the name of the alleged abuser or whether any physical abuse occurred. The insurers say the wave of claims threatens to divert money away from legitimate claimants and into the pockets of lawyers, outside funders and undeserving plaintiffs.
“A plan of reorganization that compensates real victims is impossible without this threshold investigation into abuses” of the claims process, insurers including Century Indemnity, Ace Insurance Group and Hartford Accident and Indemnity said in a strongly worded request for discovery filed Jan. 22. “Each baseless claim dilutes the potential recover for actual victims.”
Plaintiff lawyers, including some of the nation’s most prominent trial attorneys, accuse the insurers of using delaying tactics to stall the bankruptcy and avoid paying claims. They say they filed thousands of claims at the last minute to preserve the rights of their clients and they can supply any lacking information later. They also say the insurers have no standing to delay bankruptcy, as the Boy Scouts have not joined them in the request for discovery.
The hearing scheduled for tomorrow in the courtroom of U.S. Bankruptcy Judge Laurie Silverstein promises an airing of allegations that echo accusations insurance companies have made throughout the course of asbestos litigation, sometimes against the same attorneys. In both cases, they say plaintiff lawyers used aggressive advertising campaigns to recruit tens of thousands of clients, many with ill-supported or fraudulent claims, to flood the bankruptcy proceedings and to take control of the reorganization plan.
Under bankruptcy law, creditors are ranked in priority according to the number and dollar value of their claims, so a class of plaintiffs with billions of dollars in potential claims will overwhelm trade creditors and others who are owed smaller amounts. The Boy Scouts entered bankruptcy a year ago to reorganize and pay off what the nonprofit group then estimated to be less than 2,000 claims its volunteer scout leaders had abused children. By the time the claims window closed in November, it was hit with more than 95,000.
Most of the claims were filed by a handful of small firms specializing in sexual-abuse litigation, although heavy filers included the prominent asbestos law firms Napoli Shkolnik and Marc J. Bern Associates. Several small law firms and solo practitioners, apparently led by retired Houston attorney Timothy Kosnoff, created the Coalition of Abused Scouts and Abused in Scouting to pay for advertisements promising money to abuse claimants if they called a toll-free number and signed up as clients.
Kosnoff, in an email to another lawyer last year, said his strategy was “to keep focused on marketing and media efforts going full tilt” until the Nov. 16 filing deadline. If coalition members “control 80% of the claims,” he wrote, “our coalition controls the case.” The insurers say coalition lawyers financed their ad campaign with the help of hedge funds including Catalur Capital Management and Legal Bay LLC.
The strategy appears to have worked. In their brief seeking an investigation into the coalition’s claims, the insurers say coalition members flooded the Boy Scouts with claims, sometimes signing hundreds per hour or using scanned signature pages to submit forms. Junell & Associates told claimants it would “complete a BSA form on your behalf so you do not miss the November 16 deadline,” the insurers say.
Several claims aggregators helped law firms find clients, the insurers say, including Verus Services, which said it would handle the complete process of reviewing data and filing claims. Consumer Attorney Marketing Group provided similar services plus television and internet ads, including an ad incorrectly claiming a $1.5 billion victims compensation fund “is being set up.” Napoli Shkolnik and Marc J. Bern were among the firms that hired CAMG for their Boy Scouts campaigns, the insurers say.
Not everybody on the plaintiff side has been happy with the results. Legal Bay, in a November news release, said it was “appalled at the final tally of over 92K claims of sexual abuse and harassment already filed,” as compared to the 25,000 cases it estimated would be lodged against the Boy Scouts.
“The high number of claims is putting a major strain on the settlement amounts awarded to plaintiffs at the culmination of their trials,” the legal funding group said.
Plaintiff lawyers have largely rejected the insurers claims. Napoli Shkolnik denied any connection to the coalition law firms and said it didn’t receive any money from hedge funds to finance Boy Scouts litigation. It also denied its lawyers have an obligation to fully research proofs of claims submitted to a bankruptcy court, saying its lawyers are only responsible for the accuracy of the information on the form, such as the claimant’s name and address.
Kosnoff angrily responded to the insurers’ claims by saying he has long specialized in abuse claims against organizations like the Mormon and Catholic churches and he spent 200,000 hours investigating the Boy Scouts. He described his email detailing a strategy of using claims to gain control of the bankruptcy as “a privileged communication” that was “broadcast by a faithless attorney.”
“Admittedly choosing words that were coarser than necessary, Mr. Kosnoff stands by the ideas he communicated,” he said, however.
Abused Scouts for Justice, in their response, said the insurers’ motion “is ill conceived on its face and serves no legitimate purpose at this time other than for purposes of delay, harassment, and intimidation.”
The job of the bankruptcy court is to approve a plan of reorganization and the insurers have no role at this stage in determining the accuracy of claims, the group said.
“To the extent that fraudulent claims exist, they can be vetted in accordance with trust distribution procedures post-confirmation,” Abused Scouts for Justice said. “If there are 95,000 valid sexual abuse claims, their coverage obligations are what they are under the terms of their respective policies of insurance.”