Illinois Appellate Court Decision
An Illinois appellate court has upheld a trial court’s decision to stay a declaratory judgment action filed by National Surety Corporation regarding insurance coverage for historic sexual abuse claims associated with the Boy Scouts of America (BSA). The court concluded that ongoing federal litigation and a pending bankruptcy appeal warranted pausing the Illinois proceedings.
Background of the Dispute
The controversy began when 18 former Scouts initiated a lawsuit in 2012 against BSA and its Chicago-area council, alleging sexual abuse by Scout leader Thomas Hacker between 1980 and 1988. National Surety, which had issued excess liability insurance policies to BSA, filed a seven-count complaint in Illinois seeking a declaration that it was not obligated to provide coverage. The suit named BSA, the Hacker claimants, and 19 other insurers, including Allianz Global Risks U.S. Insurance Company, which had settled with BSA.
Bankruptcy and Victims Compensation Trust
With abuse claims soaring beyond 82,000, BSA filed for Chapter 11 bankruptcy protection in 2020. As part of the reorganization, BSA established a Victims Compensation Trust and transferred to the Trust the rights to insurance coverage once held by BSA and the abuse claimants. A federal bankruptcy court in Delaware confirmed the plan in 2022, although the confirmation remains under appeal in the U.S. Court of Appeals for the Third Circuit.
Trustee’s Authority and Federal Litigation
The bankruptcy plan enjoined all individuals from pursuing claims against insurers based on transferred insurance rights, granting exclusive authority to the Trustee—retired Judge Barbara J. Houser—to pursue insurance recovery. Shortly before the bankruptcy court lifted its automatic stay on related litigation, the Trustee filed a new lawsuit in federal court in Texas. This complaint named National Surety, Allianz, and nearly 90 other insurers, seeking coverage for all abuse claims, including previously settled ones, under more than 3,000 policies. The Trustee described it as a “comprehensive” action.
Illinois Circuit Court’s Decision
In the Illinois action, the Trustee moved to dismiss the case under section 2-619(a)(3) of the Illinois Code of Civil Procedure, arguing that the Texas federal litigation involved the same parties and cause. Around the same time, National Surety and Allianz each moved to amend their pleadings to address developments in the bankruptcy. Instead of ruling on either motion, the Illinois circuit court stayed the case sua sponte, citing concerns about duplicative litigation, judicial efficiency, and the pending Third Circuit appeal. The court found the federal action more comprehensive and held that allowing the Illinois case to proceed would risk inconsistent rulings.
Arguments and Appellate Court Conclusion
The trial court rejected National Surety’s argument that the Hacker claimants were not represented in the Texas litigation, holding that the bankruptcy plan vested those rights with the Trustee. It also dismissed Allianz’s assertion that its inter-insurer counterclaims could not be asserted in the Texas case, stating those claims could be raised later if appropriate.
Applying the Kellerman factors—used in Illinois to evaluate whether duplicative litigation warrants a stay—the court found that continuing the Illinois case would result in multiplicity and could undermine judicial economy. The court emphasized that the Texas federal case involved a broader set of claims and policyholders, including approximately 83,000 abuse claimants. It also noted that BSA has been headquartered in Texas since 1978, its insurance policies were issued there, and Texas has the second-largest number of abuse claimants.
On appeal, National Surety and Allianz argued that the trial court abused its discretion by entering the stay without first ruling on their motions to amend, and by concluding the Texas action involved the same parties and issues. The appellate court disagreed, noting that the stay was entered sua sponte—not on the Trustee’s motion—so section 2-619(a)(3) did not apply. The court held that the trial court acted within its discretion to manage its docket, especially given the pending Third Circuit appeal and the still-developing federal case in Texas. The court also affirmed that the Trustee, under the bankruptcy plan, represents the rights of all abuse claimants, including the Hacker claimants, and that the causes of action in both cases are effectively the same. The motions to amend remain pending and were not denied, the court clarified. “No abuse of discretion occurred,” the court concluded, affirming the stay in full.
Focus on Procedural Grounds
Although the case involves complex insurance coverage issues, the opinion did not analyze specific policy terms or exclusions. The decision focused entirely on procedural grounds—specifically, the appropriateness of a stay in light of related federal proceedings and the confirmed (but appealed) bankruptcy plan.
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