Updated: Boy Scouts of America Bankruptcy Filing Affects Churches, File for Protection Against Claims Today

Updated: December 9, 2021

Please read the following notice from diocesan legal counsel:
"Out of an abundance of caution, on November 16, 2020, the Episcopal Diocese of North Carolina (the “Diocese”) filed generalized, protective proofs of claim (the “Member Protective Claims”) in the above-referenced Bankruptcy Cases on behalf of all of its member and affiliated parishes, churches, and missions (collectively, the “Members”) that did not file their own proofs of claim...." Read full notice.

NOVEMBER/DECEMBER 2021 UPDATE FROM LEGAL COUNCIL

We wanted to provide a brief update regarding the Boy Scout’s bankruptcy case following the summary provided by our lawyers, Emily Mather and Lee Hogewood, in the call on November 2, 2021.

Many of you received a large package of documents, which include the Boy Scout’s plan of reorganization and disclosure statement. Additionally, you received ballots for voting for or against the plan. Whether to vote for or against the plan is a decision each parish should make on its own, after discussing the plan’s terms with counsel. Once the Diocese of North Carolina has decided if it will vote and how it will vote, we will update you.

The deadline for voting on the Boy Scouts of America’s Plan of Reorganization has changed. The deadline has been moved from December 14, 2021 to December 28, 2021 at 4 p.m. If it is extended again, we will let you know. To be clear, however, there is no penalty for not voting or for missing the deadline.

The key feature of the plan applicable to Episcopal parishes that served as Chartered Organizations for the Boy Scouts is that any abuse claims arising after 1976 are subject to a “channeling injunction” and release under the Plan. This means that any person with claims of abuse occurring during a meeting or other event on a Chartered Organization’s property will not be subject to suit or other liability. Rather, the claimant must seek recovery from a fund created under the Boy Scout’s plan. For claims arising prior to 1976, Chartered Organizations can receive similar protection in two ways: (1) the Claimant may elect to accept a one-time payment of $3500 in exchange for a release of all claims, including claims against Chartered Organizations; or (2) a Chartered Organization could negotiate with the Boy Scouts to make a financial contribution and, in exchange, be granted protection for pre-1976 claims. Presently, there is no set amount for such contributions and the amount required will likely depend upon the nature and number of any potential pre-1976 claims relevant to a specific parish.

If you have any questions, please contact Canon David Sellery.

SEPTEMBER 2021 UPDATE FROM LEGAL COUNCIL

Re: Boy Scout Units Chartered by Local Episcopal Churches

Dear Episcopal Churches of North Carolina:

As you may know, the Boy Scouts of America (the “BSA”) filed for bankruptcy protection in Delaware in early 2020. One result of the bankruptcy is that longstanding obligations of the BSA to provide certain insurance coverage and indemnity to sponsoring churches have been cast into doubt. The potential loss of that insurance coverage and indemnification would be a substantial and detrimental change in the nature of the relationship between the BSA and Episcopal churches.

Last year, the Episcopal Diocese of North Carolina (the “Diocese”) engaged counsel to file protective proofs of claim in the bankruptcy case on behalf of all of its member and affiliated parishes, churches, and missions that did not file their own proofs of claim. The Diocese’s filing of such claims was intended to be protective in nature and preserve the potential claims of its members; however, as was stated at the time, affiliated parishes, churches and missions were encouraged to file proofs of claim for themselves if they determined it was appropriate to do so.

Since that time, the BSA has proposed a plan of reorganization for addressing its liability for sexual assault allegations and emerging from bankruptcy. The plan proposes to address abuse claims by channeling them to a settlement trust for satisfaction, and in turn, release the BSA and its local councils from liability. The settlement trust is to be funded by, among other things, certain insurance rights and proceeds.

As of now, the proposed plan does not offer concrete protection from liability to the BSA’s chartered organizations, such as the Diocese and its members, parishes, churches and missions. Additionally, the right of chartered organizations to coverage and indemnification under BSA insurance policies is in limbo. Although the details of the plan is evolving, the Diocese, among other chartered organizations, are currently in a difficult position.

Despite the BSA’s past assurances that it held sufficient insurance to cover chartered organizations in case of injured scouts, it has become apparent that the BSA did not have enough or sufficient insurance. There simply is not enough BSA insurance money available to pay all of the sexual abuse claims levied against it. Approximately 85,000 sexual abuse claims were submitted to the bankruptcy court by alleged victims. Some of those claims involve Episcopal churches in some fashion, and some of the claims may involve Episcopal churches located in North Carolina. There are various confidentiality provisions that make it difficult to determine which, if any, Episcopal churches in North Carolina have potential exposure in connection with such claims. We are working with the national Church to gain access to as much information as possible, but, at present, the information we possess on this subject is quite limited.

In light of the foregoing, some Episcopal churches could be at risk of being sued. As you know, the filing of a lawsuit, while potentially damaging to a church’s reputation is not the same as a court determining that a church is liable for damages. Nonetheless, adverse judgments are possible under the circumstances and could result in liability to alleged victims. In such an event, it is unlikely that any recovery will be obtained from the BSA or its insurance policies assuming a plan of reorganization similar to the one now proposed is confirmed by the Bankruptcy Court.

Future Relationship with the BSA
In light of the uncertainty surrounding the BSA’s plan of reorganization and emergence from bankruptcy, the Diocese recommends that local churches consider changing their relationships with scouting units going forward.

If your local church currently charters a scout unit, we recommend that you consider electing not to renew that chartering agreement when it is up for renewal or re-chartering this fall, and instead consider informing the local scout council that you will not renew the chartering agreement, but will only extend the current agreement until December 31, 2021; or

If your local church does not charter a scout unit at this time, we recommend that you consider not chartering a unit until the bankruptcy case concludes at which time we should have a better understanding of whether the Diocese’s relationship with scouts can continue in the future and, if so, how such relationships should be documented.

We understand that these suggestions are dramatic, but we think they represent the most prudent course of action at this time in order to protect our local churches from costly litigation.

After December 31, 2021, we should be in a better position to see how the BSA’s future will unfold, and the Diocese will be able to make further recommendations on how to proceed.

Final Thoughts
The BSA’s current plan of reorganizing puts Episcopal churches at risk. As a result, we recommend that churches reconsider their relationships with the BSA on a go-forward basis, at least for the time being.

As the situation warrants, we will continue to update you on this matter.

PREVIOUS INFORMATION SHARED

As you may know, on February 18, 2020, the Boy Scouts of America (BSA) and its wholly-owned affiliate Delaware BSA, LLC filed for bankruptcy in Delaware bankruptcy court. It is a Chapter 11 bankruptcy, which allows businesses time to restructure or reorganize their debts, while the business continues to operate. The case is known as In re Boy Scouts of America, et al., No. 20-10343 (Bankr. D. Del.).