A new twist in the diocese’s bankruptcy case

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The lone insurance company holdout on a settlement in the Roman Catholic Diocese of Rochester bankruptcy has thrown down a gauntlet in a fight with abuse survivors and the diocese.

The Continental Insurance Co.’s bid to file a competing plan of reorganization comes as a plan already submitted by the diocese could soon go up for a vote. In Chapter 11 cases, confirmation of a debtor’s reorganization plan is the final step before creditors can be paid.

Creditors in the diocese bankruptcy are some 475 adult survivors of sexual abuse at the hands priests and other church functionaries as children decades ago.  

The insurer’s bid throws a new, unexpected wrinkle into the case, but it will not meaningfully delay a payout, predicts attorney Leander James.

James, who represents 76 of the abuse survivors with claims in separate state-court actions, is one of several such lawyers who, though not directly involved in the bankruptcy, have very closely followed the case.

In the bankruptcy, after nearly four years of tortuous negotiations among insurers, the diocese and a survivors’ committee, the diocese first proposed a plan of reorganization last March. It is expected to soon file an amended version that will add in extra amounts recently agreed to by two insurers that bring the total available to pay survivors to $126.75 million.

James believes that amount will remain secure, despite any disruption stemming from CNA’s bid to file a rival plan. He earlier predicted a payout as likely to come early next year.  

The diocese’s plan is blessed by the bankruptcy’s Committee of Unsecured Creditors, a body made up of survivors that was appointed by the U.S. Trustee to look out for survivors’ interests in the case. It calls for a trust to be established out of which survivors’ claims would be paid.

To fund the trust, the diocese and its parishes have agreed to contribute $55 million. Several insurance companies that wrote liability coverage for diocese when the decades-old sexual abuses occurred have agreed to contribute the rest.

Among such insurers, only CNA has not signed on to the diocese’s plan. In a July 31 filing, CAN states that it plans to counter the diocese plan with a plan of own. It has yet to publicly reveal details.

The issue underlying the arcane dispute is what amount CNA might ultimately pay to settle survivors’ claims and how it might pay them.

CNA’s filing comes on the heels of creditors committee lawyer Ilan Scharf’s July 27 filing,  which asked the court to block CNA from filing a plan.

Despite the committee’s qualms, CNA maintains that the court must consider the plan it intends to file alongside the diocese’s already filed plan.

In Chapter 11 cases, debtors typically file their own plans. A provision of the Bankruptcy Code gives debtors 120 days to file a plan and allows that period to be extended up to 18 months. As protracted negotiations dragged on in the case, the diocese’s exclusivity period expired long ago.

How the dispute might play out is not yet clear.

Bankruptcy Court Judge Paul Warren has yet to schedule a hearing to consider the insurance company’s bid and the committee’s competing motion.

Warren could quash CNA’s bid or agree to let CNA file a plan and have both plans go to a vote.

Whether CNA has the right to independently file a plan is not immediately clear.

“Whether Continental can file and solicit a plan of reorganization is for this court to decide in the context of plan proceedings,” the insurer itself concedes in its July 31 filing.

To be confirmed, Chapter 11 reorganization plans have to be first approved by creditors and then by the presiding judge. Once a plan is confirmed, payouts to creditors can be made after 45 days. If both plans go to a vote, creditors could vote CNA’s plan down.

More than a year ago, CNA and the diocese jointly submitted a proposal that would have had CNA, which is liable to pay more than half of survivors’ claims, settle its obligations with a $63.5 million payment.

The creditors committee rejected that offer as too paltry. The committee had earlier rejected a $35 million offer tendered by the diocese and several other insurers to partially settle survivors’ claims.

The diocese’s March plan came after several insurers agreed to contribute amounts more to the committee’s liking. The recent agreement of two more insurance companies to contribute a combined $50.75 million brought the diocese plan’s total payout to survivors to $126.75 million.

CNA maintains that since the diocese never officially withdrew the $63.5 million settlement offer, it is still under active consideration. Creditors committee attorney Scharf maintains that the diocese’s more recent agreements with insurers but not CNA renders the earlier agreement between CNA and the diocese moot.  

While CNA has yet to publicly state the amount its plan would propose to pay, Scharf asserts in the committee’s July 27 filing that CNA plans to up its $63.5 million offer by an unstated amount that would still be too low.

In negotiations, “the only insurer that did not sufficiently increase its offer was CNA,” the committee’s filing states. On  a per-claim basis, it adds, CNA’s new higher offer is still “less than half the average claim amount that the settling carriers agreed to pay.”

By proposing to offer a plan while not publicly disclosing the amount of its new higher settlement offer, CNA breached the mediation sessions’ confidentiality requirements, Scharf contends in the July 27 motion. He portrays the insurer’s move as a tactic meant to intimidate survivors and the diocese.  

“CNA’s intent to file a plan and its refusal to fund a settlement acceptable to survivors is consistent with its overall strategy of conducting scorched-earth litigation to minimize

its coverage in violation of applicable law and the terms of its insurance policies,” he states in the July 27 filing.  

CNA counters in its July 31 filing that the plan it wants to put forward would “constitute a settlement offer that survivors can choose to accept if they wish.”

In the filing, CNA argues that Scharf’s attempt to strike the $63.5 million offer is legally unsound, and that its plan would “reserve all of Continental’s rights to enforce its (earlier $63.5 million) settlement agreement with the diocese.”

A provision of the diocese’s plan assigns its right to sue non-settling insurers to the survivors’ trust, a feature that after the diocese emerges from its Chapter 11 could see CNA dealing with hundreds of already filed individual cases in state court.

The diocese plan calls for the judgment amount in each individual case to be pre-determined, depriving CNA of the right to dispute the amount of each claim in a state-court case, but leaving open the possibility that it could try to deny the legitimacy of the claim.

CNA is liable for more than half the claims sought by survivors. At one point in the bankruptcy it disputed 270 survivors’ claims. However, Scharf maintains in the July 27 filing that CNA “is even now attempting to reel back (that position) because of the consequences it faces from those unlawful actions.”

Anticipating the possibility that CNA or other insurers might succeed in kicking out survivors’  claims in state court, Warren warned in a ruling he handed down last spring that were that to happen, “the massive insurance recovery that has been predicted by the (creditors) committee and the personal injury attorneys (would vanish).”

The diocese first asked for Chapter 11 court protection in September 2019, roughly a month after the New York Child Victims Act took effect. The CVA opened a two-year window for survivors of decades-old childhood sexual abuse to pursue claims against their abusers. Such claims otherwise would otherwise have been barred by a seven-year statute of limitations.

When the CVA took effect in August 2021, Roman Catholic dioceses across the state were quickly hit with hundreds of abuse claims. Rochester’s was the first of five to file for bankruptcy. None are yet resolved.

As the diocese bankruptcy enters its fourth year, CNA’s alleged recalcitrance has already cost survivors in the Rochester case dearly and will cost more, warns Scharf.

“Sexual abuse survivors are dying without compensation in this case. Other survivors have had their claims payments unfairly and inequitably delayed because of CNA’s illegal conduct,” he wrote in the July 27 filing. “CNA cannot put survivors to the misleading choice of years of litigation delay or taking whatever unfair and inequitable settlement that CNA has to offer.”

Will Astor is Rochester Beacon senior writer. The Beacon welcomes comments and letters from readers who adhere to our comment policy including use of their full, real name. Submissions to the Letters page should be sent to [email protected]

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