Final chapter in diocese bankruptcy draws closer

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Hearings this month promise to set the stage for a long-awaited final settlement of the Roman Catholic Diocese of Rochester’s bankruptcy.

The diocese sought Chapter 11 protection in September 2019, a month after New York’s Child Victims Act went into effect. The CVA opened a temporary window for survivors of childhood sexual abuse to pursue abusers who otherwise would be protected by a statute of limitations.

Some 485 survivors claiming abuse at the hands of priests and other church functionaries have filed claims in the Rochester diocese bankruptcy. They have waited more than four years while the diocese, insurance companies that wrote liability policies for the diocese and its parishes, and a committee of survivors have tried to hammer out terms of a financial settlement in a court-ordered mediation.

In its final rounds, the tortuous negotiation has come down to a standoff between the diocese, the survivors committee and the Continental Insurance Co., a lone holdout that so far has not agreed to contribute an amount acceptable to the survivors committee, a body appointed by the U.S. Trustee to look out for survivors’ interests.   

The agreement struck by the diocese, all insurers but Continental and the committee is laid out in an amended plan of reorganization jointly filed by the diocese and the committee in September. It calls for creation of a $127.35 million trust fund out of which survivors’ claims would be paid.

Under the plan, the diocese and its parishes would contribute $55 million while several insurers would jointly contribute the balance. The diocese’s right to collect from Continental would be assigned to survivors, who could pursue Continental in state court actions to collect additional payments.

Continental, also known as CNA, has filed a rival plan under which it would contribute $75 million to the trust and would not have to face individual claimants in court. Other terms are similar to the diocese’s plan.

The $75 million in Continental’s rival reorganization plan follows a $63.5 million contribution Continental and the diocese agreed to last year. The creditors committee has rejected both amounts as woefully inadequate, maintaining that on a per-survivor basis the Continental offers fall far short of what all of the diocese’s other liability carriers have agreed to pay.

In that deal, other insurers also proposed payments ranging from $16.5 million to $26 million while the diocese proposed to contribute $40 million. The diocese’s reorganization plan reflects significantly higher amounts that insurers and the diocese itself agreed to pay after the committee rejected Continental’s 2022 proposal. In its amended plan, the diocese agreed to add $15 million while several insurers collectively agreed to kick in an additional $27.5 million.

In the first hearing, slated for Dec. 8, the creditors committee seeks to have Bankruptcy Judge Paul Warren declare the $63.5 million deal the diocese and Continental struck last year to be dead.

“The committee was not a party to the negotiations of the superseded settlements and, based on its analysis of the underlying claims and coverage available, the committee determined the superseded settlements were wholly inadequate,” creditors committee attorney Ilan Scharf wrote in an October filing asking Warren to declare the $63.5 million deal moot.

In an objection filed last month, Continental claims that the $63.5 million deal is still in effect and that the diocese was wrong to negotiate the deal with other insurers laid out in the reorganization plan.

“It is beyond legitimate dispute that (the diocese’s) decision (to) seek approval of (its reorganization plan) was a material breach of its obligations under the Continental

Settlement,” Continental attorney Jeffrey Dove maintains in the filing.

Meanwhile, in a separate action, Continental has filed a Bankruptcy Court claim seeking to recover damages from the diocese for extra expenses Continental says it has already incurred and might incur in the future as a result of the diocese pulling out of the $63 million deal and filing a plan that would expose Continental to future court actions.

To reach the $63.5 million agreement, Continental “spent many hours and many thousands of dollars working with the Debtor to negotiate, draft, and finalize a definitive settlement agreement,” Dove maintains in a Nov. 7 filing. The filing does not total Continental’s expense claims.

In its reorganization plan, the diocese “proposes to assign to the Trust (the diocese’s) rights in the Continental Policies, while also leaving Continental to defend sex abuse claims in the tort system. All of these acts breached the ($63.5 million) Continental Settlement Agreement,” Dove asserts in the filing.

A late January date is currently set for the court to consider Continental’s request for compensation. It’s not known whether Continental would have grounds to pursue its compensation claim if Warren agrees to declare the $63.5 million deal dead.

Before the January hearing takes place, however, the court will hear arguments from the diocese, the committee and Continental on the diocese’s and Continental’s competing reorganization plans in a Dec. 19 hearing. The court could let either or both plans go to a vote by the 485 abuse  survivors who in bankruptcy terms are the diocese’s creditors.

While court proceedings grind on, expenses continue to mount in the bankruptcy. As of October 31, a court filing shows, the diocese has paid out $12.3 million to compensate lawyers, accountants and consultants working on the case. Expenses continue to grow by six-figure amounts monthly.

How soon survivors might see compensation is unclear.

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]

One thought on “Final chapter in diocese bankruptcy draws closer

  1. The financial, emotional and reputational price tag of sex abuse is only now being laid bare. When the faithful donated money down thru the years it always was with the belief that the money would go to feed and cloth the poor and provide other such charitable pursuits. The stated twelve million dollars paid thus far to the Diocese’s attorneys, accountants, consultants (including private investigators to dig up dirt on the victims) is in a word appalling. I doubt the Catholic Church will ever get back their reputation nor have the same expanse. I predict the Catholic Church will occupy a much smaller footprint. We will see.

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