Judge rebuffs bid by creditors committee in diocese bankruptcy

Bankruptcy Judge Paul Warren has declined to kill a $63.5 million deal between Continental Insurance Co. and the Roman Catholic Diocese of Rochester in the diocese’s bankruptcy. Warren’s decision came after he called off a Dec. 8 hearing in which the insurer and the official committee of unsecured creditors were expected to present oral arguments.

Warren’s decision, handed down later the same day, leaves questions to be settled: whether either or both rival plans of reorganization presented by Continental and the diocese can be put up to a vote by creditors, and whether Continental can collect damages from the diocese for expenses the insurer says it bore after the diocese pulled out of the 2022 settlement agreement.

Approval of some plan of reorganization by creditors and the court is needed before payments can be made to the 485 survivors of sexual abuse at the hands of priests and other church functionaries seeking compensation from the diocese.

Before calling off the Dec. 8 hearing, Warren, hoping to avoid protracted litigation in the already drawn-out bankruptcy, had invited the parties to work out a global settlement. In his decision, the judge called his failed attempt to cut short the contentious proceedings “a perhaps naïve but well-intended effort.”

The Rochester diocese filed a Chapter 11 bankruptcy petition in September 2019, a month after the New York Child Victims Act took effect. The CVA created a temporary window for survivors of long past childhood sexual abuse to go after abusers who otherwise would be protected by a statute of limitations.

The Rochester diocese was hit with hundreds of claims. It was the first of several Roman Catholic dioceses in the state to seek court protection.

Expecting to face payouts topping $100 million, Rochester diocese officials said they planned to see much of the burden borne by insurance companies that had written liability policies when the decades-old abuses occurred.

At the bankruptcy’s start, Bishop Salvatore Matano of the Rochester diocese told parishioners their contributions to church coffers would not go toward a settlement. In the end, he relented, with apologies to parishioners; the bishop agreed to a plan in which parishes would contribute more than $10 million.

Led by Continental, some insurers balked at payouts they might be called on to make. Warren ordered the diocese, insurers and the committee, a body appointed by the U.S. Trustee to look out for the interests of sexual abuse survivors who are creditors in the diocese bankruptcy, into mediation.

More than four years later, a deal satisfactory to all parties remains elusive. At the heart of the talks lies the question of how much of the cost of compensating abuse survivors each party might bear.

Over the course of talks, insurers and the diocese announced three settlement plans that the survivors committee rejected.

This year, several insurers along with the diocese and the committee signed on to a plan under which a $127.35 million trust to pay survivors’ claims would be created.

That deal is memorialized in a proposed reorganization plan jointly put forward by the diocese and the committee. The plan calls for the diocese to assign its right to collect claims to cover survivors’ damages from Continental to survivors, a measure that would leave the insurance company facing numerous costly state-court actions, each one of which could potentially result in six- or seven-figure judgments.

Continental and the committee remain at odds, with the committee rejecting two offers Continental has put forward.

Struck in 2022 between Continental, also known as CNA, and the diocese, the $63.5 million deal that Warren declined to kill came first. It would have settled Continental’s obligations to pay abuse survivors and excused Continental from further liability.

In rejecting that offer, the committee called the $63.5 million amount insufficient and complained that the diocese and the insurance company had negotiated the deal without consulting the committee.

Several other insurers at the same time also separately struck deals with the diocese, which the committee rejected on similar grounds.

To arrive at the diocese’s reorganization plan, the diocese, several insurers and the committee negotiated deals in which the insurance companies and the diocese upped the amounts they would agree to contribute toward a settlement to create the $127.35 million trust.

Unwilling to face the further court actions the diocese plan might subject it to, Continental countered with a competing plan, upping its previous $63.5 million offer to $75 million but proposing terms otherwise similar to the diocese plan.

The committee also rejected the $75 million offer, objecting that on a per-survivor basis it remains woefully short of what the other carriers have finally agreed to pay.

Warren is slated to consider the competing reorganization plans at a Dec. 19 hearing. The U.S. Trustee, meanwhile, has submitted papers asking the judge to kill both as unconfirmable.

In two separate actions, Continental has filed papers seeking to collect damages in an unstated sum from the diocese for expenses it claims it bore to strike the $63.5 million deal and costs it might bear if the diocese plan is approved. A Jan. 30 hearing is slated for the court to consider Continental’s damage claims.

Had Warren agreed to the committee’s request that he declare the $63.5 million deal moot and superseded by the agreements the diocese, other insurers and the committee reached after the committee rejected the $63.5 million offer, it might have somewhat simplified ongoing attempts to reach a global settlement in the long-running bankruptcy.

However, Warren ruled, the committee cannot unilaterally declare the Continental deal dead simply because it and other parties have separately come to terms.

“The committee’s transparent attempt to conflate the terms ‘settlement agreement’ and ‘settlement offer’ is unavailing. A settlement agreement is not rendered a nullity by the conveyance of a yet unaccepted superior post-settlement offer,” the judge wrote in his decision.

As the parties continue to wrangle and survivors await compensation, expenses continue to mount. As of Oct. 31, the diocese has paid out $12.5 million in monthly draws to lawyers, accountants and consultants working on the bankruptcy.

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].