Two more insurers agree to settle sexual-abuse claims

Two more insurance companies have agreed to sign on to a deal that will bring sexual abuse victims’ potential payout in the Roman Catholic Diocese of Rochester’s long-running Chapter 11 bankruptcy to more than $126 million.

Tortuous negotiations involving the diocese, abuse survivors and insurance companies that wrote liability policies for the diocese when the decades-old abuses occurred have delayed a resolution of the case for nearly four years. The liability carriers will ultimately foot most of the final bill. 

In a July 21 court filing, the diocese notes agreements by the Interstate Insurance Co. to pay $50 million and First Insurance Co. to pay $750,000.

The two insurers’ long-awaited capitulation moves the bankruptcy a tantalizing step closer to resolution. But one company, Continental Insurance, known as CNA, is stubbornly refusing to sign on to a settlement that the diocese and all other insurers have now agreed to, a holdout that could augur further delay in survivors’ payout.

Last March, the diocese took a significant step toward a final settlement of the bankruptcy with its filing of a reorganization plan. Such plans are often seen as the final point in a Chapter 11 reorganization.

In a requirement standard for all Chapter 11 cases, the diocese’s plan must be approved by abuse survivors, who account for virtually all of the diocese’s creditors, and by Bankruptcy Court Judge Paul Warren before it can take effect.

The bankruptcy’s Official Committee of Unsecured Creditors, a body made up of abuse survivors appointed by the U.S. Trustee to look out for survivors’ interests, jointly filed the diocese plan, an indication that survivors’ approval is virtually guaranteed.

The diocese states in the July 21 filing, submitted jointly with the creditors committee, that it intends to file an amended plan “on or about Sept. 13,” putting off any vote by survivors or action by Warren until at least that date. The diocese is asking the judge to set a hearing date on the amended plan’s confirmation no more than 45 days after the plan is submitted.

Jeff Anderson, an attorney representing survivors with claims in the bankruptcy in separate state-court actions against the Rochester diocese, lauds the late-coming insurers’ agreement to settle as “a real measure of accountability” but adds that it is only a partial step forward.

Bankruptcy filings like the Rochester Diocese’s Chapter 11 automatically put all other court actions on hold pending a resolution of the bankruptcy. While their state court cases are stalled, Anderson and other lawyers representing survivors in those claims have played an unofficial yet influential behind-the-scenes role in the bankruptcy.

Leander James is also an attorney representing survivors in state court claims against the diocese. CNA’s recalcitrance could delay any payment to survivors for months, possibly putting a payout into next year, he warns.  

The diocese’s plan calls for a trust to be set up out of which abuse survivors’ claims are to be paid. It also would assign the diocese’s rights to collect payments from its liability insurers to the trust, effectively giving survivors the right to individually pursue insurers in court.

The diocese and its parishes have pledged to contribute $55 million to the trust. Other liability carriers than CNA have promised contributions totaling $20.6 million. The contributions just promised by the Interstate and First insurance companies bring the total so far available to pay survivors’ claims to $126.35 million.

In arrangements legally known as stipulated judgments, the plan calls for the diocese and any non-settling insurer being sued to work out the value of each claim in advance, an arrangement that would automatically put the insurer on the hook for the pre-agreed, stipulated-judgment amounts in each case.

In an April 23 ruling, Warren pointed out a potential sticking point in that arrangement, noting that even though a non-settling insurer could not object to the amount it owed, it could object to the validity of the claim.

“The question of whether Interstate, CNA and other carriers have valid defenses to the diocese’s declaratory judgment action remains unanswered. And, answering the coverage question is critically important,” the judge wrote.

CNA, which is liable for some two-thirds of the 475 claims sought by survivors, previously offered to settle for $65 million. The creditors committee turned that offer down. In signing on to the reorganization plan, it would seem likely that the creditors committee believes survivors could collectively see their payout boosted by more than the $65 million CNA offered by pursuing individual claims against CNA.

Early on in the case, CNA asked Warren for permission to lift the automatic stay on survivors’ state court claims that it would be liable to pay so that it could try to get the claims thrown out.

In a sample case CNA submitted as part of the request, the insurance company suggested that it could, for example, cite the diocese’s prior knowledge of abuses committed in cases where abusive priests were transferred from diocese to diocese rather than being removed from service as reason to void claims.

Warren turned down the insurance company’s request. But if the diocese’s reorganization plan goes through, CNA could now decide to take its chances on knocking out claims in state court.

Warren seems to see that as a possibility.

“The Committee, perhaps at the behest of the personal injury attorneys, has indicated a strong… inclination to accept the risks of litigation in exchange for the potential for a greater recovery,” the judge noted in the April 25 decision.

“If the Diocese and the Committee are wrong,” warned Warren, “the massive insurance recovery that has been predicted by the committee and the personal injury attorneys vanishes.”

The Rochester diocese first sought court protection in September 2019, a month after New York’s Child Victims Act took effect. The CVA temporarily voided a statute of limitations on sexual abuse crimes, opening a two-year window for survivors of childhood abuse to go after their abusers.

Hundreds filed claims against Catholic dioceses across the state. The Rochester diocese was the first of four that have now sought court protection to file bankruptcy.

As of May 31, the Rochester diocese had paid $10.6 million to compensate attorneys, accountants and consultants working on the bankruptcy. Such expenses have continued to climb in six-figure jumps each month. May’s payout totaled $663,319.

Originally published in the Rochester Beacon by Will Astor.