LANE ONE: USA Gymnastics reorganization plan approved to go to a vote that could see 60% of 510 abuse claims paid in 2022

The U.S. Bankruptcy Court for the Southern District of Indiana

“The Disclosure Statement is approved is approved pursuant to Section 1125 of the Bankruptcy Code and provides holders of Claims entitled to vote on the Plan with adequate information to make an informed decision as to whether to vote to accept or reject the Plan.”

That statement, part of a 76-page order released Tuesday by U.S. Bankruptcy Court for the Southern District of Indiana Judge Robin L. Moberly, allows the comprehensive reorganization program for USA Gymnastics to go to a vote. If passed, it would create a fund of possibly more than $427 million to pay the abuse and other claimants resulting from the Larry Nassar abuse scandal and related events. Next:

29 Oct. 2021: Information and ballots will be distributed to those Claimants eligible to vote on the Plan.

29 Nov. 2021: Ballots must be received by this date.

02 Dec. 2021: Voting report to be filed with the Court.

03 Dec. 2021: Objections to the confirmation of the plan must be filed (with replies due by 10 December).

13 Dec. 2021: Hearing to consider confirmation of the Plan.

The Plan can be confirmed by a majority vote in each class of claims which are eligible to vote (there are six classes). Both USA Gymnastics and the Additional Tort Claimants Committee of Sexual Abuse Survivors filed letters of endorsement of the Plan, which will be sent with the ballots. If approved, USA Gymnastics, the U.S. Olympic & Paralympic Committee and numerous other parties – including for U.S. national team coaches Bela and Martha Karolyi – would be released from any and all liability related to the abuse scandal.

In Class 6, which is the sexual abuse claims group, a total of 510 validated claims have been filed (59 against someone other than Nassar) and the potentially available funding in the settlement pool is $400,659,129.

However, not all of the insurers of USA Gymnastics and the USOPC have agreed to participate. The Disclosure Statement notes that the eight settling insurers’ commitments total $292,332,331 or 73.4% of the total settlement offer, but that TIG Insurance Company ($106,201,818 or 26.6% of the total) has not agreed to participate.

Houston-based TIG had total assets of $926.2 million at the end of 2020, including $410.1 million in retained earnings and paid-in capital. It insured USA Gymnastics from June 1986 through July 1998 and then from August 2001 to July 2004 and the USA Gymnastics Plan of Reorganization shows a total of 199 claims (out of 510 total or 39.0%) against TIG.

So, if the Plan is approved, USA Gymnastics and the Survivors Committee can elect for a “Partial Settlement Option,” under which all of the claims made against insurers other than TIG Insurance will be paid from the already-agreed $292.3 million fund, and those with actions against TIG can pursue them directly in court. USA Gymnastics and the Survivors Committee could decide on a “Litigation Only Alternative” and it’s everyone for themselves, with lawsuits to be filed by all Claimants directly against insurers if they wish to pursue a claim; that’s seen as unlikely.

USA Gymnastics also received 339 non-abuse claims, mostly for “amounts due for services provided by chaperones, instructors and coaches at various training camps, competitions and other gymnastics events.” These will also be paid from the insurers’ funding pool.

The actual amount to be received will be determined by a complex “points system” which compiles the harm to each survivor under the direction of retired Judge William Bettinelli.

If the Plan is confirmed and the Partial Settlement Option is selected (as is likely), then Bettinelli and his staff will ask each of the survivors whose claims are covered by the participating insurers (all but TIG at this time):

● To file – within 30 days of a request – a “written (personal) statement” which “shall be no longer than 5 pages in length, single sided, double spaced with 12-point font.

● An optional personal interview with Bettinelli can be arranged if desired by telephone, videoconference or in-person.

● A points system will be used to evaluate each claim, including

1. “Pre-Existing Risk and Resiliency Factors” (up to 20 points);
2. “Nature of the Sexual Abuse” (40);
3. “Post-Abuse Mental and Physical Functioning” (40);
4. “Legal Considerations” (20);
5. “Post-Abuse Employment Issues” (30);
6. “Assessment of Global Severity of Impact/Suffering” (20)
7. “Additional Factors for Olympians and National Team Members and other Survivors” (20).

The actual payout will be determined by adding up all the points from all Claimants and dividing the available funding by the points total. This will give a value for a single point; the Plan explains it as “if there are 100 Abuse Claimants, who are awarded a total of 5,000 points, with a total net Settlement Fund of $1 million, each point would be valued at $200.” Then each Claimant would be paid by their number of points multiplied by the single-point value.

An individual’s point total can be appealed for reconsideration with 14 days.

A 1% reserve will be established for “Future Claimants,” who did not properly make their claims, but will have them separately considered apart from the 510 confirmed Abuse Claims now before the Court.

Complicated? Yes. But the agreement of the Court to this program as proposed by USA Gymnastics and the Survivors Committee is a major step forward towards the outright settlement of as many as 311 abuse claims and many of the other outstanding claims in this proceeding, which started with the bankruptcy filing by USA Gymnastics on 5 December 2018.

The understated conclusion of the Disclosure Statement includes “The Debtor believes that confirmation and implementation of the Plan is preferable to any other alternative.”

There is little doubt that this is true, and if adopted by mid-December, the Plan will lead to more than 60% of the claims being concluded and paid by the middle of 2022. But if TIG Insurance decides to litigate its 199 claims – which appears a real possibility at the moment – the court cases surrounding the Nassar scandal – and the retelling of his abuses – will likely go on into the middle of this decade.

Rich Perelman

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