Last week, the Continental Insurance Co. offered to put $75 million into a fund to pay some 485 sexual abuse survivors with claims in the Roman Catholic Diocese of Rochester’s bankruptcy.
Continental is a lone holdout, the only carrier among several insurers that previously worked out deals to pay claims with the diocese and a committee representing the interests of the abuse survivors with claims in the case.
Added to the $126.35 million the diocese, its parishes and other insurers have already agreed to pay, Continental’s offer would bring the total payout to survivors to $201.35 million. The offer comes with strings—a guarantee that Continental, known as CNA, would be protected against further legal action survivors might take.
Faced with a tsunami of claims after New York’s Child Victims Act took effect in August 2019, the diocese asked for court protection in September of that year. The CVA opened a temporary window for adult survivors of sexual abuse to sue abusers who would otherwise have been protected under a statute of limitations.
The Rochester diocese was the first of several Catholic dioceses in the state to file a Chapter 11. None have yet been resolved.
CNA’s offer comes in the form of a plan of reorganization. In Chapter 11 cases, court approval of a plan of reorganization is the last step in resolving cases. For a reorganization plan to be finalized, creditors have to approve it in a vote, and the presiding judge must sign off on it as well.
Such plans are usually deals worked out between a debtor and its creditors. Third parties like CNA do not usually get to preempt debtors, like the diocese, in filing such plans.
Unsolicited by the diocese or abuse survivors, CNA’s reorganization plan rivals one previously filed by the diocese. It also borrows some of the diocese plan’s provisions, perhaps most notably the one that would immunize CNA from further court actions.
In filing its own plan, CNA is relying on a provision of the Bankruptcy Code that gives debtors 120 days to file a plan. Since the diocese bankruptcy has now dragged on for four years, that deadline has long elapsed, giving it the right to file a plan, the insurer maintains.
The diocese, a committee representing abuse survivors, officially known as the bankruptcy’s Committee of Unsecured Creditors, and diocesan liability carriers, including CNA, began court-ordered talks four years ago to see who would pay how much to settle survivors’ claims.
From the bankruptcy’s start, diocesan officials were clear that they expected insurers to pay the bulk of any settlement.
The multi-party settlement talks, overseen by mediators, were ordered by Bankruptcy Judge Paul Warren after CNA proposed filing a state court action to dispute the diocese’s right to collect some or all claims. A sample state court case CNA submitted to the bankruptcy court argued that the diocese was aware of abuses when they were committed and thus should now be ineligible to collect.
Over the years-long course of the court-ordered negotiations, the survivors committee rejected two deals negotiated between the diocese and insurance carriers.
The first would have had an insurance carrier pay $35 million. The second, worked out between the diocese and CNA, would have CNA pay $63.5 million. In rejecting both deals, the survivors committee objected that the settlement offers were too paltry and that the deals were worked out with no input from survivors.
Usually, reorganization plans are deals worked out between a debtor and its creditors spelling out how creditors will be paid. From the start of its Chapter 11, the diocese made clear that it would count on its liability carriers to pay a good chunk of any settlement, bringing into the mix insurance companies that wrote liability policies for the diocese when the decades-old abuses were committed.
An early sticking point between survivors and the diocese was whether the Rochester diocese’s parishes would contribute to any payout.
At the Chapter 11’s start, Rochester Diocese Bishop Salvatore Matano assured parishioners their local churches would not have to pay to settle such claims. Last November, the diocese reversed itself and Matano apologized.
“While I know my words may seem hollow, simply repeating a rehearsed apology, I renew with sincerity my deep apology to the survivors of sexual abuse,” the bishop wrote.
The diocese’s reorganization plan as submitted last March called for the diocese and its parishes to jointly pay $55 million and for two insurers to kick in another $20.6 million.
A key provision of the diocese plan calls for the diocese to assign to the survivors’ trust the diocese’s right to sue any of its liability carriers that had not settled with survivors. It was meant to provide a means for survivors to collect from any insurers that had not come to terms with the committee in the long-stalled talks.
Bankruptcy Judge Warren warned in a ruling handed down last spring that the diocese plan’s reliance on future state court actions to collect part of survivors’ settlements might not be risk-free.
If CNA or another carrier were to succeed in invalidating the diocese’s claims, the judge wrote, “the massive insurance recovery that has been predicted by the (survivors) committee and the (survivors’) personal injury attorneys (would vanish).”
In July, two of the last three non-settling insurers worked out a deal with the survivors committee to kick in an additional $50.75 million, leaving CNA as the only holdout among the diocese’s carriers.
It was then expected that the diocese would file an amended reorganization plan adding in the additional $50.75 million to bring the trust’s potential total to $126.35 million, leaving CNA open to state court actions.
In late August, however, CNA signaled its intention to file its own reorganization plan.
Hoping to head CNA off, survivors committee attorney Scharf filed a motion, asking the Bankruptcy Court to block CNA from filing a reorganization plan.
Warren has so far not weighed in on the dueling plans but has set an Oct. 5 date to hear the survivors committee’s and CNA’s competing claims. He could quash the CNA plan, declare it or an amended version of the diocese plan as the only official plan, or let both plans go to a vote, leaving it to survivors to choose.
In addition to incorporating the provision insulating settling insurers from further court action, CNA’s plan calls for its proposed $75 million contribution to be added to the $126.35 million the diocese, the survivors committee and other insurers have already agreed to.
CNA argues in its plan document, that rather than having only the 12-member survivors committee determine its fate, its plan would let “abuse claimants to speak for themselves regarding whether they prefer to accept the certainty of CNA’s $75 million contribution to the trust, without the risks, costs, and delays of litigation, or instead want to bear the risks, burdens, and delay they would face to obtain payment from CNA under the diocese-committee plan.”
If CNA’s plan does go up for a vote, whether abuse survivors would welcome the offer outlined in CNA’s plan as their best option is not clear.
While not specifically naming the $75 million figure, creditors committee lawyer Scharf notes in his court filing opposing the CNA plan that CNA had upped its $63.5 million offer to an unspecified amount in the confidential court-ordered talks.
Given that CNA is responsible for more than 300 of the 485 survivor claims in the diocese bankruptcy, Scharf maintains in his brief objecting to CNA’s plan that “the increased amount was clearly insufficient … and is clearly designed to confuse survivors.”
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].