By Peg Brickley

The cost of compensating victims of the Boy Scouts of America's failure to screen out sexual predators may threaten an insurance company's solvency and could spread to Chubb Ltd., the country's largest commercial insurer, according to court papers filed by a survivors' group.

Filed by a coalition of law firms representing sex-abuse victims, Thursday's court papers suggest escalating tensions in the Boy Scouts bankruptcy case, where the youth group, its insurers and the nearly 84,000 men who stepped forward seeking compensation haven't reached settlement terms.

Talks are dragging on in the largest sexual abuse bankruptcy in history, according to people close to the chapter 11 case. Battles that have been confined to the negotiating table now are erupting into public view.

The victims' coalition, which makes up the bulk of sex-abuse claims filed against the Boy Scouts, said the organization isn't pressuring its insurers to make good on policy contracts. Meanwhile, insurers such as Chubb's Century Indemnity Co., are critical of victims' lawyers, pointing to alleged signs they filed questionable claims with little to no vetting.

The coalition said the Boy Scouts should no longer remain in exclusive control of their chapter 11 case, in part because of its disapproval of a $650 million settlement with another insurer, Hartford Financial Services Group Inc., last week.

In a statement, the Boy Scouts said the victims lawyers "painted a grossly misleading picture of the insurance settlement dynamics" in the bankruptcy. The Boy Scouts said they would respond to the criticism at a hearing next week in the U.S. Bankruptcy Court in Wilmington, Del.

Victims are counting on insurance proceeds from Century and other carriers to cover a sizable portion of a compensation trust that will administer claims and dole out payments after the Boy Scouts exit bankruptcy.

Century is in runoff, meaning it manages existing coverage but doesn't write new business. Although the unit's finances are opaque, victims said that from what material they have seen, it may not have the resources to pay its share of settlement costs. If that happens, a courtroom fight could erupt over whether Chubb has to stand behind its subsidiary, according to the coalition's papers.

The premise of the victims' argument -- that Chubb should be on the hook for Boy Scouts sexual abuse claims -- is that it inherited the coverage obligations of a predecessor that wrote policies for the youth group.

Century and Chubb declined to comment on the victims' arguments, which came as the Boy Scouts prepare for a critical courtroom showdown. Next month, the Boy Scouts will seek court approval to poll victims on a chapter 11 plan that includes an estimated $115.6 million from the national youth group, perhaps $425 million from local councils, and insurance. No dollar value has been put on the insurance yet.

Victims have said the settlement offered isn't enough compensation for lives destroyed by childhood trauma.

Also under fire is the only proposed insurance settlement so far, a $650 million pact with Hartford that victims believe amounts to less than the policies are worth.

A Hartford spokesman said the insurer's settlement is based on the appropriate value of the insurer's obligations, and was reached with the aid of mediators.

"We are deeply sympathetic to the victims of childhood sexual abuse and the enduring trauma they suffer," the spokesman said. The Boy Scouts also said that victims are wrong in characterizing the Hartford settlement as inadequate.

The mechanics of the Hartford settlement are linked to Century, in a clause that, according to victims, enables Hartford to reduce its payments if Century winds up paying less than $1.3 billion.

Given Century's financial plight, Hartford could wind up paying only $280 million into a bankruptcy trust, far less than its exposure, the coalition argued.

Thousands of insurance policies were issued to the Boy Scouts and to local councils over the decades when children were being exposed to sexual predators. As the bankruptcy plan stands, any insurer that doesn't reach a settlement in advance will have to contend with victims later.

Write to Peg Brickley at peg.brickley@wsj.com

(END) Dow Jones Newswires

04-23-21 1708ET