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USA Gymnastics Files Chapter 11; Seeks Court Ruling on Insurance Payments

December 06, 2018, 08:02 AM
Filed Under:
Related: Bankruptcy

As it struggles to right itself following a high profile sexual misconduct scandal, USA Gymnastics filed a voluntary petition for protection under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Indiana. This filing will enable USA Gymnastics to continue to support its athletes, to fully operate and meet its responsibilities to the entire membership and to expeditiously resolve the claims made by the survivors of sexual abuse perpetrated by Larry Nassar. 

“We owe it to the survivors to resolve, fully and finally, claims based on the horrific acts of the past and, through this process, seek to expedite resolution and help them move forward,” said Kathryn Carson, who was recently elected chair of the USA Gymnastics Board of Directors. “Our sport is safer and stronger thanks to the bravery of these women. The Chapter 11 filing and the expedited resolution of these claims are critical first steps in rebuilding the community’s trust. 

“At the same time, the filing will allow us to continue the important work of supporting our outstanding gymnasts at all levels, including the current and next generation of Olympic hopefuls,” continued Carson. “Since joining the Board last June, I have been inspired by the commitment of our members -- the administrators, judges, coaches and club owners -- who work daily to foster a safe, positive and encouraging environment where thousands of young people can learn gymnastics and life skills, compete and pursue their dreams. 

The survivors’ claims against USA Gymnastics are covered by insurance previously purchased by USA Gymnastics, and the amount of available insurance proceeds available is not affected by the Chapter 11 filing. Apart from these insurance proceeds, USA Gymnastics has no other significant assets that could be used to pay claims. USA Gymnastics believes that the Bankruptcy Court is the best forum in which to implement appropriate procedures to equitably determine and allocate the insurance proceeds among claimants, allowing compensation to survivors to proceed more quickly than litigation filed in multiple courts around the country. 

In the ordinary course of its operations, the Debtor maintains multiple insurance policies including, among others, general liability, umbrella, directors and officers liability, accident liability, catastrophic medical liability, employed lawyers liability, media liability, and automobile liability.  

To finance the Lloyds Umbrella Policy (as described below), the Debtor entered into a premium financing agreement with Aon Premium Finance, LLC (“Aon”). Under the Premium Financing Agreement, Aon paid the $725,000 annual premium for the Lloyds Umbrella Policy on the Debtor’s behalf in exchange for a cash price from the Debtor consisting of: (i) a $333,000 down payment; and (ii) nine (9) monthly payments of$46,380.21. The first monthly payment became due on September 1, 2018 and the last payment will become due on May 1, 2019. As of the Petition Date, the Debtor is current on all amounts due under the Premium Financing Agreement. 

In first day motions, lawyers for USA Gymnastics noted that "the nonpayment of any premiums, deductibles, or other amounts under any of the Policies or the Premium Financing Agreement could result in one or more of the insurance carriers increasing future premiums, declining to renew its insurance policies, or refusing to enter into new insurance agreements with the Debtor. If the Policies lapse without renewal, the Debtor may be exposed to substantial liability for third-party liability claims to them detriment of all parties in interest. It is important that the Debtor maintain insurance coverage in order to protect current employees, athletes, and other members. Failing to maintain proper insurance coverage would therefore impair the Debtor’s restructuring efforts. Accordingly, the Debtor submits that paying obligations under the Policies and Premium Financing Agreement and renewing, supplementing, or entering into new coverage, all in the ordinary course of operations, is warranted under section 363(b) of the Bankruptcy Code."

"The Debtor has sufficient funds to pay the amounts described herein in the ordinary course of business by virtue of retained funds in its general operating account," the brief notes. "In addition, under the Debtor’s existing cash management system, the Debtor can readily identify checks or wire transfer requests as relating to an authorized payment in respect of the relief requested hereunder. Accordingly, the Debtor believes that checks or wire transfer requests, other than those relating to authorized payments, will not be honored inadvertently. Therefore, the Debtor requests that the Court authorize and direct all applicable financial institutions, when requested by the Debtor, to receive, process, honor, and pay any and all checks or wire transfer requests because of the relief requested in this Motion." 

“We are moving forward with our plans to strengthen our organization to further support the work of our members and gymnasts,” said Carson. “We have made significant progress in implementing safety initiatives and are in the process of searching for a new CEO who has the experience to build a leadership team that will restore confidence in USA Gymnastics, and set and execute a clear vision for a successful future.” 

For additional context on insurance premium finance, see "Insurance Premium Finance - An Untapped Market" - published last August by ABL Advisor.





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