Insurers misuse proof of claim forms in mass tort bankruptcy cases



In recent years, a growing number of entities, such as the Boy Scouts of America and Catholic Dioceses, have sought bankruptcy protection to deal with liabilities arising from mass crimes, the most egregious of which are related sexual misconduct involving children. Debtors facing these claims have used the bankruptcy system to bring all key stakeholders to the table in order to reach a comprehensive resolution.

Insurers play a critical role in these cases, as debtors look to insurance companies to meet their obligations and pay large sums into survivor trusts. However, insurers have used (or abused) the bankruptcy system to avoid or substantially reduce the contribution required to surrender their policy.

Questions designed to deter applicants

A common tactic used by insurers is to attempt to manipulate proof of claim forms to reduce the number of claims filed.

As detailed proof of claim forms have become increasingly common in mass tort bankruptcy cases, insurers have sought to add invasive questions that go beyond the simple information needed to establish the basis for the bankruptcy. complaint. Insurers did this under the guise of getting more information about the claims to assess them in terms of liability and coverage, and ultimately to reach a comprehensive settlement.

In practice, however, these questions are designed to deter claimants – who may already experience trauma from having to remember distressing events – from filing claims and ultimately reducing exposure. potential of insurers.

An analysis of more than a dozen diocesan bankruptcy cases revealed common strategies used by insurers. A question that insurers frequently seek to add to proof of claim forms in diocesan cases is whether the claimant spoke to anyone about the abuse and the details of that disclosure. (See the declarations of the insurers in In re Roman Catholic Diocese of Syracuse and In the Diocese of Rochester.) In some cases, insurers have even requested written documents or correspondence that demonstrate whether the survivor contacted anyone about the abuse, and if so, who.

While relevant for the analysis of coverage issues by insurers, for example whether a diocese had been made aware of an abuser’s previous abuse or evidence supporting a defense that the abuse was “expected and intended” , the Proof of Claim form is not the appropriate vehicle to fish for such evidence.

Additionally, questions like this can give survivors the impression that it is necessary to have spoken to someone about the abuse or to have documented such a notice in order to make a claim. While questions of whether the abuse was disclosed to anyone have been permitted, the courts have dismissed questions asking for documentation of that disclosure.

No more questionable requests

Another frequently suggested addition by insurers is a question asking whether the diocese knew or should have known about the abuse (to the claimant or others). (See the declarations of the insurers in In the Diocese of Camden, New Jersey and In re the Roman Catholic Diocese of Rockville Center, New York.)

Questions about diocesan knowledge are best directed to the diocese, and there is no reason to ask the requester for this information. This is especially the case where the applicants were often children at the time of the abuse and may lack memory or actual knowledge of what was done on their behalf in relation to the diocese.

The issue also implies that the survivor should have informed the diocese of the abuse and that by failing to do so, the survivor was somehow complicit in the cover-up. These questions were rejected by the Camden and Rockville courts.

Insurers, including those of the Rockville and Rochester Diocesan cases, also sought to interview applicants about other cases of sexual abuse unrelated to the diocese. Such a question is irrelevant for the purposes of determining whether the applicant a prima facie case against the debtor, and is rather an interrogation aimed at putting together defenses regarding a survivor’s claim.

This question is also intrusive, and requiring the victim to disclose multiple and unrelated experiences of sexual abuse could be helpful. deterrent effect on a survivor’s willingness to assert a claim. The courts have also rejected the inclusion of this issue in the proof of claim forms.

Who signs the form?

Finally, an issue in a number of bankruptcy cases involving sexual abuse claims has been whether the proof of claim form can be signed by a lawyer or must be signed by the claimant.

Insurers have argued that allowing a lawyer to sign opens the door to misrepresentation. Decisions on this have been mixed, with some courts requiring signatures of claimants and others allowing signatures of lawyers. (See Scouts, Camden, and Rochester bar date orders.)

Specialized proof of claim forms used in sexual abuse and other mass tort cases should be simple and streamlined, bearing in mind that many forms are submitted by pro se claimants. The forms should not be used as an opportunity for the parties to make an intrusive discovery.

Given the horrific nature of childhood sexual abuse that survivors may first reveal, the questions should not be designed to deter survivors from making a complaint or worse, to contribute to the harm already suffered. Courts, committees and lawyers representing survivors must be mindful of the rules of the insurer’s game and firmly guard against misuse of the survivor claim form by insurers seeking to avoid honoring their contractual obligations.

This column does not necessarily reflect the opinion of the Bureau of National Affairs, Inc. or its owners.

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Author Info

Jeffrey L. Cohen is Partner and Chairman of the Bankruptcy and Restructuring Department of Lowenstein Sandler LLP. His practice focuses on Chapter 11 bankruptcy reorganizations and related litigation, serving as a trusted advisor to unsecured creditors, creditors committees and distressed businesses to clients in the retail and industry bankruptcy arena. of technology.

Michael A. Kaplan is a partner at Lowenstein Sandler LLP. He has extensive experience at every stage of bankruptcy litigation, from investigating potential claims and causes of action to initiating adversarial proceedings on behalf of committees and liquidating trusts.

Rasmeet K. Chahil is a partner at Lowenstein Sandler LLP. She represents clients in internal investigations, commercial litigation and white collar criminal defense matters, as well as in bankruptcy litigation matters.

Lowenstein Sandler LLP currently represents the official tort creditors committee in the case of In re the Diocese of Camden, New Jersey.



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