The insurance carriers have denied coverage because their plan documents do not cover gross negligence and intentional conduct. The carriers contend USAG acted intentionally, or at least with gross negligence. It's difficult to decide such a matter on pleadings through motion practice, but the "missing documents" go a long way toward proving that defense before a judge. Normally, such issues would have to go to a jury which would take around 2 years and $75,000+/month to litigate based on the fee structure at the participating firms.
USAG is not a large corporation. It's actually very small. The documents were not accidentally left in a closet. Penney perhaps needs a new attorney (or more likely to listen to his attorney) because his "defense" in the news that no one actually asked for the documents is so outlandish based on the timeline and criminal and civil investigations, he is making his criminal situation worse.
Under bankruptcy law, I do not believe USAG would be able to wipe out the claims brought against it because of the exceptions for willful conduct - at least for the claims after the reasonable notice date. I do not believe USAG would qualify for reorganization, but the trustee and judge would decide. Even if the claims were not wiped out, the reality is there is no money so it means the same thing. Whatever assets the entity has would fall under standard bankruptcy payment priorities. The unsecured liability claimants would not get pennies on the dollar, but it would come close. They could try to pierce the corporate veil to get the individual assets of certain key executives, but there is likely not enough money for the time and expense to justify the litigation. 99% of claims in this country settle. The complexity of dealing with criminal liability, insurance defense, third party claims against entities such as the USOC, and multiple attorneys and plaintiffs makes settlement challenging but truly the only option. The Michigan State plaintiffs had a solvent defendant; USAG will be insolvent.
The new NGB will not use any of the materials from the USAG and therefore will not need to pay for them. The materials have extremely low economic value and very little legally protectable intellectual property interests. If copyright and Level 3 music is all USAG has left, then it might as well light its remaining assets on fire. For instance, there are five required elements in JO (not complicated, can easily be replicated in the public domain) and the elite code comes from FIG. There is no intellectual property value in assigning a value part to an element. Also, the world is digital and USAG materials are grossly antiquated. Find a former gymnast or current coach with a computer science or graphic degree, and let's see the significantly better materials they can produce. As an example of potential innovation from restructuring, Kelli Hill is leading one of the very many new NGB-petition organizations. I'm sure she, and the other people in her group or in other groups, could come up with a new competition and code structure which would have many benefits and likely be an improvement over the current state.
I saw an argument from the Board of Directors (?) that USOC does not appreciate the complexity of running the JO, but mainly elite, program. If that's the best argument they have to retain their status, I am very concerned. The entire camp structure could disappear and USA would still win women's team. Although the same 10 gyms (sadly) would produce all World and Olympic team members, they are more than proficient at fielding a competitive team without attending a single camp. The team would not be as good as it is currently, and it would not build upon all the talent at its disposal in the United States, but the skilled clubs would find a way to produce. If the argument is USAG manages elite and JO programs better than anyone, I think the proof is clear the organization does not. It's travel and apparel bills are much higher per capita than other NGBs, and its public relations, athlete relationships, sponsorships, insurance litigation and safety record show (exceptionally) clear management issues.
