Amy Kallal and Pamela J. Minetto, Partners with Mound Cotton Wollan Greengrass LLP summarized the current state of law regarding Sexual Abuse and Molestation (SAM) claims which have exploded in number and potential exposure. This explosion is due to the enactment by states of so-called “reviver statutes” (statutes that give plaintiffs a window in which to bring a claim for injury that would otherwise be barred by statutes of limitation), the lengthening of statutes of limitations for such claims, and the impact of social inflation on jury verdicts. It was noted that relevant statutes vary by state, and an overview graphic was utilized to depict the range of such statutes, while another graphic illustrated the potential claimant’s age limitations by state. Many of these statutes have been subject to Constitutional challenges that may impact how claims pursuant to the statutes play out. Social inflation factors exacerbate the prospective values of these cases with jury awards in excess of $10 Million increasing by 30% in 2023. A recent case in California resulted in a verdict for $900 Million in a case where a former employer of the plaintiff was sued for sexual assault.
Many coverage issues result from these claims, not the least of which are “lost” policy issues. Direct insurers must be able to demonstrate comprehensive and diligent searches for policies that existed long ago when the abuse was alleged to have taken place and along a continuum of time in which “injury” is alleged to have taken place, or face a negative inference on that issue in coverage litigation. Many of the attendant issues that arise in delayed manifestation cases are presented by these claims. Such issues for any given policyholder are subject to specific terms and definitions that can vary over the potential policy years at risk. So too, the resulting reinsurance issues are endemic of delayed manifestation claims and can pit the cedant handling these claims “in the trenches” (sympathetic plaintiffs in a high-risk judicial environment) against reinsurers demanding strict adherence to the policy terms and conditions as well as reinsurance contract wordings.
Pamela Minetto reviewed the highly volatile realm of bankruptcy litigation that has lately made front-page headlines against major defendants who have filed for Chapter 11 relief to contain and manage massive claims. An overview of the Bankruptcy process was provided and the importance for insurers in participating in plan formation and negotiation was noted. The discussion then turned to the complex recent decision of the US Supreme Court in Harrington v. Purdue Pharma LP. This was a 5 – 4 decision; the opinion was delivered by Judge Gorsuch and joined by Thomas, Alito, Barrett and Jackson. Justice Kavanaugh in which Roberts, Sotomayor and Kagan joined filed a strong dissent. The case held: “The bankruptcy code does not authorize a release and injunction that, as part of a plan of reorganization under Chapter 11, effectively seeks to discharge claims against a nondebtor without consent of the affected claimants.” [The Sacker Family was a nondebtor seeking releases under the Plan in Purdue Pharma]. In the aftermath, this created ongoing debate with respect to several issues that flow from the opinion’s effect on existing Bankruptcy Trusts. Some insurers and claimants involved in the Boys Scouts of America (“BSA”) have appealed to the Third Circuit on an expedited basis to determine the impact of Purdue on the BSA Plan of reorganization, and that will likely have an impact on the direct appeal to the Third Circuit recently filed in the Diocese of Camden bankruptcy case as well.
A core concept surrounding the participation of insurance companies in policyholder bankruptcy cases is the concept of “insurance neutrality”, that is that contractual rights should be preserved in the bankruptcy plan as they existed “pre-petition.” But the application of this concept was treated differently by courts as to whether it is merely a “standing” issue (giving the insurers standing to voice their issues) or a requirement for confirmation of a plan. The recent Supreme Court case of Truck Insurance Exchange v Kaiser Gyspum Co. (No. 22-1049) June 6, 2024 came down heavily on the “standing” side of this issue. Justice Sotomayor (in a 8 – 0 opinion, Justice Alito did not participate) went so far as to say that the doctrine of “insurance neutrality” is conceptually wrong because it conflates the merits of an objection (i.e., whether the plan alters the insurer’s contractual rights or “quantum of liability”) with the threshold party in interest inquiry (i.e., whether the insurer might be directly or adversely impacted by the reorganization plan). This will, no doubt, have an impact on how insurers will participate in bankruptcy plans that deal with SAM claims.
This excellent presentation contains a wealth of additional detail and analysis and can be accessed in the AIRROC On Demand Library at https://airroc.memberclsims.net/airroc-on-demand.
