Chapter 11 announced - Part 3 - BSA's Toggle Plan

[Muttsy]

With respect to the the TCC $103B claim value estimate, it is probably conservative but it is also academic. 

The BSA's most valuable asset is the insurance. Some councils participated in its insurance program a year or a few prior to 1984 when the national BSA insurance program became mandatory for all councils.  Some of the pre-1984 policies named the local councils, troops and camps as "additional insureds." Before the national insurance program was established LC's maintained their own separate insurance. Much less is known about those policies because the LC's have been unwilling or unable to produce them. Lost policies problems can be overcome. The problem is that it is difficult to negotiate when one doesn't know the extent of insurance coverage. 

The same is true with respect to the SO's especially the larger ones like the Catholic Dioceses, Mormon, Methodist etc. They maintained the same Commercial General Liability policies as BSA, and often with the same insurance companies. Again, the TCC has not been provided with most of these policies so the extent of coverage with respect to those entities is unknown, but it is substantial. 

I say substantial because of several critical problems for the insurers who sold these policies.

First, prior to ~1984, the underwriters of these companies did not envision a claims avalanche such as the child sexual abuse phenomenon that has taken place over the past fifteen years.

Second, They did not foresee that legislatures would pass retroactive window legislation years later that would revive "dead" claims and policies.

Third, they never understood the nature of pedophilia and child molesters nor understood that a pedophile has over a hundred victims in a lifetime of offending. They knew or should have known from their claims experience especially with the BSA that it could be a big problem. But they went ahead and collected millions of dollars in premiums from these institutions and issued the policies. 

Fourth, until the late 1980's they issued polices for bodily injury that did not have "aggregate caps." The policies had maximums of $250/500k per abuse occurrence but there was no cap on the number or amount of claims it would face per policy year. If they had five claims per policy year then their maximum exposure would be 5 x 500 = $2,500,000.

This was standard in the industry. No annual aggregate cap policies like these extend back in time to at least the 1950's. 

None of them thought these legacy policies would later emerge on their balance sheets as massive liabilities decades later.  Century and its predecessor companies like Insurance Company of America (INA), later acquired by ACE and then ACE when it merged and became Chubb understood the problem by the mid-nineties. INA and CIGNA which were responsible dumped these toxic polices in to a "run-off" company it named Century Indemnity.

It grossly underfunded Century, putting only 1.2B in to it. (A "run-off" insurance company is one that does not sell insurance. It exists to handle claims from historical legacy policies like the ones discussed above.) Century has less than $400M left of that initial capitalization, not nearly enough to cover the BSA claims alone not to mention all the other institutions that purchased policies from INA et al. 

The mystery behind the creation of Century as a "toxic waste dump" of massive liabilities that was grossly underfunded is the reason the Coalition has subpoenaed documents from Chubb regarding this transaction last week. Why Chubb? Because Chubb (f/k/a ACE Insurance) purchased Century Indemnity in 1999 for ~$3.5B. The Coalition/TCC/FCR will correctly argue that Chubb is responsible for the toxic polices in its subsidiary Century Indemnity. Chubb will fight to the death because the liabilities of Century Indemnity are Chubb's liabilities and those liabilities are, as asserted by the TCC, $103B conservatively. Chubb is welcome to fight to the death post-confirmation with the Trustee of the post-confirmation trust. The BSA will be out of bankruptcy and the fight over insurance will go on. There are insurance coverage lawyers that are superstars that the trustee will hire. 

Chubb has some serious problems here. First, It is the largest (most prestigious) publicly held property casualty insurance company in the world. It has the highest rating (A++) that A.M Best, the Moody's of the insurance industry, gives in recognition of Chubb's balance sheet, book of business and management.

A.M. Best is apparently unaware that Chubb's balance sheet does not reflect the toxic liabilities of subsidiary Century Indemnity and Century is now, essentially, insolvent because of BSA claims. 

When ACE purchased Century in 1999, the transaction had to be approved by the Pennsylvania Insurance Commissioner. The Coalition is pursuing those emails, letters, memoranda, too. The PA Insurance Commissioner undoubtedly assumes that Chubb as the parent company of Century will stand behind it and won't it go into insurance insolvency. 

And it is not just the Insurance Commissioner that cares about this. So does the stock market. So do Chubb shareholders. And most importantly, so do existing and future Chubb policy holders. 

When you look at $101B in BSA exposure and realize that Chubb's total market capitalization as of today is $75B, you see the math problem for Chubb. 

If Chubb were to allow Century to go insolvent, it would devastate Chubb's A.M. Best rating. Who would be foolish enough to buy insurance from a company that reneges on its promises to policyholders? That is why Chubb is in a tough spot and why Tanc Schiovoni, the attorney for Century behaves like such a goon in this case. His job is to throw as many obstacles in the path of the bankruptcy case as he can. He attacks the survivors as frauds and their lawyers as filing fraudulent claims. He is not acting in good faith. He is Chubb's thug. 

Finally, on a brighter note, what we don't know but which the Coalition is pursuing, is the question of how much re-insurance there is in the case. Again, neither the Hartford nor Century have cooperated in giving this information. It could be substantial. These are some big players like Lloyds of London, Berkshire Hathaway, AXA Bermuda and a host of others who issue insurance policies to insurance companies enabling them to lay off risk. 

We also don't know if there are insurance company "treaties" involved here. Without getting in to the weeds, think NATO. When one comes under severe "attack" they have agreements among themselves to help out in case one of them gets hammered. 

These are things to think about when considering the TCC/Coalition/FCR plan when, hopefully, the judge allows them to file it. 

 

 

 

[johnsch322]

13 minutes ago, qwazse said:

The Catholic church right now is seen very positively -- almost better for having their warts revealed.

Yet they are still being investigated and sued and having negative PR.  I think just this week I read something about an archbishop.  Not sure how that could be seen as a positive.

[yknot]

24 minutes ago, Muttsy said:

With respect to the the TCC $103B claim value estimate, it is probably conservative but it is also academic. 

The BSA's most valuable asset is the insurance. Some councils participated in its insurance program a year or a few prior to 1984 when the national BSA insurance program became mandatory for all councils.  Some of the pre-1984 policies named the local councils, troops and camps as "additional insureds." Before the national insurance program was established LC's maintained their own separate insurance. Much less is known about those policies because the LC's have been unwilling or unable to produce them. Lost policies problems can be overcome. The problem is that it is difficult to negotiate when one doesn't know the extent of insurance coverage. 

The same is true with respect to the SO's especially the larger ones like the Catholic Dioceses, Mormon, Methodist etc. They maintained the same Commercial General Liability policies as BSA, and often with the same insurance companies. Again, the TCC has not been provided with most of these policies so the extent of coverage with respect to those entities is unknown, but it is substantial. 

I say substantial because of several critical problems for the insurers who sold these policies.

First, prior to ~1984, the underwriters of these companies did not envision a claims avalanche such as the child sexual abuse phenomenon that has taken place over the past fifteen years.

Second, They did not foresee that legislatures would pass retroactive window legislation years later that would revive "dead" claims and policies.

Third, they never understood the nature of pedophilia and child molesters nor understood that a pedophile has over a hundred victims in a lifetime of offending. They knew or should have known from their claims experience especially with the BSA that it could be a big problem. But they went ahead and collected millions of dollars in premiums from these institutions and issued the policies. 

Fourth, until the late 1980's they issued polices for bodily injury that did not have "aggregate caps." The policies had maximums of $250/500k per abuse occurrence but there was no cap on the number or amount of claims it would face per policy year. If they had five claims per policy year then their maximum exposure would be 5 x 500 = $2,500,000.

This was standard in the industry. No annual aggregate cap policies like these extend back in time to at least the 1950's. 

None of them thought these legacy policies would later emerge on their balance sheets as massive liabilities decades later.  Century and its predecessor companies like Insurance Company of America (INA), later acquired by ACE and then ACE when it merged and became Chubb understood the problem by the mid-nineties. INA and CIGNA which were responsible dumped these toxic polices in to a "run-off" company it named Century Indemnity.

It grossly underfunded Century, putting only 1.2B in to it. (A "run-off" insurance company is one that does not sell insurance. It exists to handle claims from historical legacy policies like the ones discussed above.) Century has less than $400M left of that initial capitalization, not nearly enough to cover the BSA claims alone not to mention all the other institutions that purchased policies from INA et al. 

The mystery behind the creation of Century as a "toxic waste dump" of massive liabilities that was grossly underfunded is the reason the Coalition has subpoenaed documents from Chubb regarding this transaction last week. Why Chubb? Because Chubb (f/k/a ACE Insurance) purchased Century Indemnity in 1999 for ~$3.5B. The Coalition/TCC/FCR will correctly argue that Chubb is responsible for the toxic polices in its subsidiary Century Indemnity. Chubb will fight to the death because the liabilities of Century Indemnity are Chubb's liabilities and those liabilities are, as asserted by the TCC, $103B conservatively. Chubb is welcome to fight to the death post-confirmation with the Trustee of the post-confirmation trust. The BSA will be out of bankruptcy and the fight over insurance will go on. There are insurance coverage lawyers that are superstars that the trustee will hire. 

Chubb has some serious problems here. First, It is the largest (most prestigious) publicly held property casualty insurance company in the world. It has the highest rating (A++) that A.M Best, the Moody's of the insurance industry, gives in recognition of Chubb's balance sheet, book of business and management.

A.M. Best is apparently unaware that Chubb's balance sheet does not reflect the toxic liabilities of subsidiary Century Indemnity and Century is now, essentially, insolvent because of BSA claims. 

When ACE purchased Century in 1999, the transaction had to be approved by the Pennsylvania Insurance Commissioner. The Coalition is pursuing those emails, letters, memoranda, too. The PA Insurance Commissioner undoubtedly assumes that Chubb as the parent company of Century will stand behind it and won't it go into insurance insolvency. 

And it is not just the Insurance Commissioner that cares about this. So does the stock market. So do Chubb shareholders. And most importantly, so do existing and future Chubb policy holders. 

When you look at $101B in BSA exposure and realize that Chubb's total market capitalization as of today is $75B, you see the math problem for Chubb. 

If Chubb were to allow Century to go insolvent, it would devastate Chubb's A.M. Best rating. Who would be foolish enough to buy insurance from a company that reneges on its promises to policyholders? That is why Chubb is in a tough spot and why Tanc Schiovoni, the attorney for Century behaves like such a goon in this case. His job is to throw as many obstacles in the path of the bankruptcy case as he can. He attacks the survivors as frauds and their lawyers as filing fraudulent claims. He is not acting in good faith. He is Chubb's thug. 

Finally, on a brighter note, what we don't know but which the Coalition is pursuing, is the question of how much re-insurance there is in the case. Again, neither the Hartford nor Century have cooperated in giving this information. It could be substantial. These are some big players like Lloyds of London, Berkshire Hathaway, AXA Bermuda and a host of others who issue insurance policies to insurance companies enabling them to lay off risk. 

We also don't know if there are insurance company "treaties" involved here. Without getting in to the weeds, think NATO. When one comes under severe "attack" they have agreements among themselves to help out in case one of them gets hammered. 

These are things to think about when considering the TCC/Coalition/FCR plan when, hopefully, the judge allows them to file it. 

 

 

 

Thank you. This is an excellent post. We have some great, very informative commentators on here but this is the best explanation I have seen of the insurance side of the equation. 

[ThenNow]

1 hour ago, qwazse said:

The Catholic church right now is seen very positively -- almost better for having their warts revealed.

This may be isolated and anecdotal, but my family has been in the Catholic church, well, always. I attended all Catholic schools other than undergrad and current masters work, including law school. Our youngest son went to a Catholic university. From all reports, especially from my mom, that doesn't sound like the case. Perhaps it is facially or casually, but shrinking numbers, especially in the younger generations don't necessarily support high esteem. I do recognize the younger generations have become far less "churched" overall, which is a big factor. My mom is extremely embarrassed and ashamed of the whole thing and now the Boy Scouts. She can't even talk to me about the case because it makes her so upset. The worts may have been revealed, but they exposed them kicking and screaming, ala, the BSA. I do not currently attend a Catholic church. My other non-Catholic siblings (who all left) and friends are nothing short of disgusted with both institutions. Maybe that's a small pocket of the universe... 

[MYCVAStory]

Perhaps with the hearing scheduled to resume on Monday,  a lot of business pending, and with the Judge imploring the parties to continue negotiating, that this is an opportunity for that to happen via more mediation next week and the hearing continued to a later date.  That's a win-win if anything comes out of it and lets the judge avoid an exclusivity decision until the BSA gets one last shot to find some agreements...or not.

[ThenNow]

9 hours ago, MYCVAStory said:

this is an opportunity for that to happen via more mediation next week and the hearing continued to a later date.  That's a win-win if anything comes out of it and lets the judge avoid an exclusivity decision until the BSA gets one last shot to find some agreements...or not.

That sure sounds like it will require a pretty huge pivot by someone in the equation, which I believe has to be the BSA. I feel they have been avoidant, resistant, recalcitrant and less than deserving, for lack of a better word, of another at bat. As you said, “or not.” 

[johnsch322]

23 minutes ago, ThenNow said:

That sure sounds like it will require a pretty huge pivot by someone in the equation

It is like a high stakes game of chicken or he who blinks first....loses.

[ThenNow]

6 minutes ago, johnsch322 said:

It is like a high stakes game of chicken or he who blinks first....loses.

I don’t see the TCC, Coalition and counsel as “blinkers,” which comforts me.

[ThenNow]

15 hours ago, MYCVAStory said:

Perhaps with the hearing scheduled to resume on Monday,  a lot of business pending, and with the Judge imploring the parties to continue negotiating, that this is an opportunity for that to happen via more mediation next week and the hearing continued to a later date.

https://casedocs.omniagentsolutions.com/cmsvol2/pub_47373/a769189e-4507-4291-8930-158cd7f0075c_4831.pdf

[johnsch322]

Aw shucks another waiting game. 

[ThenNow]

1 hour ago, johnsch322 said:

Aw shucks another waiting game. 

Yupper. As someone who knows A LOT more about this than I ever will told me, I guess it "can't hurt." Miracles happen and unicorns poop bonbons and fairy dust. I need to humor myself or don the straightjacket. Limited options. The latter would mean I can't type on here so that option's off the table.

[1980Scouter]

The BSA will lidicate their way out of existence. Mark my words. Unless there is some underground deal in the works, this is the end. The BSA needs to give up alot of assets if they wish to settle this. They do not appear to realize this.

[1980Scouter]

What if all donors stopped giving money to local councils and started a trust to buy one camp per council. Restart BSA and fix the issues. 

Edited May 22, 2021 by 1980Scouter
Typo

[Eagle1993]

1 hour ago, ThenNow said:

Yupper. As someone who knows A LOT more about this than I ever will told me, I guess it "can't hurt." Miracles happen and unicorns poop bonbons and fairy dust. I need to humor myself or don the straightjacket. Limited options. The latter would mean I can't type on here so that option's off the table.

I find it very interesting that the judge delayed the trial by almost two weeks.  I wonder/hope it might mean she heard there is progress on mediation. Not sure if that is possible.  Otherwise, it seems a bit odd to delay as BSA is running out of time.  

[ThenNow]

21 minutes ago, Eagle1993 said:

I find it very interesting that the judge delayed the trial by almost two weeks.  I wonder/hope it might mean she heard there is progress on mediation. Not sure if that is possible.  Otherwise, it seems a bit odd to delay as BSA is running out of time.  

It seems like a very long time to give them, from my comfy chair. Even my wife was surprised, basically insinuating that the judge is avoiding the tough calls on a wish and a prayer. Hers is not an easy job and who am I to say. Still, lots of at bats and whiffs with precious little wood to leather, imho.