In a move that could further complicate the already contentious final chapter in the Roman Catholic Diocese of Rochester’s bankruptcy, the U.S. Trustee is urging the court to reject competing plans of reorganization filed by the diocese and the Continental Insurance Co.
The Trustee’s Dec. 5 filing comes on the eve of hearings scheduled for the court to consider the dueling plans filed by the diocese and Continental. Also known as CNA, Continental is a lone holdout among several insurers refusing to go along with a plan agreed to by the diocese, other insurance companies and survivors with claims in the bankruptcy.
Projecting that the bankruptcy would end with a more than $100 million payout to abuse survivors, diocese officials stated early on that they expected the church’s liability carriers to shoulder the bulk of the financial burden.
The diocese and Continental filed competing reorganization plans earlier this year after ongoing tortuous, court-ordered negotiations failed to yield an agreement acceptable to the official committee of creditors. Such plans are the final step in resolving Chapter 11s.
Made up of abuse survivors, the creditors committee is a body appointed by the U.S. Trustee to look out for the interests of the more than 400 sexual abuse survivors who have now waited more than four years for the Chapter 11 to wrap up.
Both the insurer’s and the diocese’s plans contain provisions that render them unconfirmable and should be scrapped, attorneys in the Trustee’s New York City office maintain in the Dec. 5 filling.
The Trustee, a Justice Department official charged with overseeing bankruptcies, is also urging Bankruptcy Judge Paul Warren to quash Continental’s bid to collect damages in an unstated amount from the diocese for losses Continental claims it suffered and will suffer in the future as a result of the diocese’s decision to pull out of an agreement that Continental and the diocese struck last year.
Warren has slated a Dec. 19 hearing to consider the diocese’s and Continental’s competing plans of reorganization and a Jan. 30 hearing to consider Continental’s bid to collect damages from the diocese. He has also scheduled a hearing Dec. 8 to consider the creditors committee bid to void the 2022 agreement. How the Trustee’s objections might affect Warren’s rulings is not yet clear.
If Warren heeds the Trustee’s objections, it could send the parties back to the drawing board to hash out a single agreement acceptable to all parties as well as the Trustee, an outcome that more than four years of talks have so far failed to achieve.
The dispute between the insurer, the diocese and the creditors committee has come down to a failure to agree on the amount of money Continental might ultimately contribute to a fund to compensate survivors.
The diocese plan calls for a $127.35 million fund to compensate individual survivors. The diocese and its parishes would contribute $55 million. Several insurance companies would contribute the balance.
That plan also calls for the diocese to assign its rights to collect from Continental to survivors, a feature that could see Continental facing scores of costly state court actions, each of which could yield six or seven-figure judgments against the insurer.
Continental’s rival plan is similar to the diocese’s reorganization plan. Instead of having survivors individually sue Continental, the insurer’s plan calls for it to contribute $75 million to the trust. In filings, Continental portrays its plan as offering survivors certainty.
The creditors committee has deemed the $75 million offer woefully inadequate, however, maintaining that on a per-survivor basis it falls far short of what other insurers have agreed to pay. The offer follows a 2022 deal between the diocese, Continental and other insurers in which Continental would have contributed $63.5 million.
The diocese backed away from that deal after the creditors committee objected to the insurer’s proposed settlement amounts as paltry and complained that the diocese and the insurance companies had left the committee out of deal talks.
This year, the diocese came to terms with the committee and all insurers but Continental, filing the $127.35 million offer. To reach that figure, several insurers collectively upped amounts they would contribute to the trust by $27.5 million while the diocese, after initially promising its parishes they would not be touched by a bankruptcy settlement, agreed to add contributions from the parishes to up the church’s total contribution to $55 million.
The diocese filed its bankruptcy petition September 2019, one month after the New York Child Victims Act took effect. The CVA created a temporary window for victims of long-past sexual abuse to legally pursue abusers who otherwise would be protected by a statute of limitations. Beset by hundreds of claims alleging abuse by priests and other church functionaries, the Rochester diocese was the first of several in the state to seek court protection. None of the New York cases have so far settled.
In response to Continental’s bid to file a state court action seeking to excuse itself from some or all responsibility for covering sexual abuse claims against the diocese, Warren ordered the parties to enter mediation shortly after the diocese’s initial filing.
While the parties have haggled over how much each might contribute, expenses have mounted, reaching $12.5 million in payments as of Oct. 31 that the diocese has paid in monthly amounts to compensate lawyers, accountants and consultants working on the bankruptcy. Expenses continue to mount by six-figure sums monthly.
Abuse survivors can only be paid after creditors and the court approve a plan of reorganization.
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].