By Annysa Johnson
Milwaukee Journal Sentinel
November 22, 2011
www.jsonline.com/features/religion/archdiocese-explores-insurance-buyback-option-k23456f-134296533.html
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| The Catholic Archdiocese of Milwaukee, which faces more than a dozen civil fraud lawsuits over its handling of clergy sex abuse cases, filed for Chapter 11 bankruptcy protection in January. As the case proceeds, we'll have updates, analysis, documents and more. |
Insurance companies could pay a portion of the Archdiocese of Milwaukee's sex-abuse settlements, despite court rulings finding them not liable, under a strategy being considered by the church's bankruptcy lawyers, according to a document filed in the case.
The archdiocese appears to be exploring the possibility of a so-called insurance policy buyback, in which an insurer buys back its policies, leaving the insured with a pool of money, and protecting itself against potentially greater losses - in this case, if the court rulings are overturned on appeal.
Archdiocese spokesman Jerry Topczewski said in an email that the church will consider all options to resolve the insurance coverage issue, including a buyback.
"But it's premature to speculate about specific options and their impact on the Chapter 11 proceedings," he said.
The creditors committee, which is composed of clergy sex abuse victims, referenced the strategy in an application last week asking U.S. Bankruptcy Court Judge Susan V. Kelley for permission to hire special counsel with expertise in insurance law.
"We need someone who understands these issues to talk to the debtor and help the committee better understand what the issues should be," said Jim Stang, lead attorney for the creditors.
The archdiocese filed for Chapter 11 bankruptcy protection in January as a way to pay its mounting clergy sex abuse claims and continue to operate. The archdiocese has maintained it has less than $10 million available to pay claims, because most of its $100 million in assets is in restricted trusts and accounts - and because courts have ruled it cannot tap its insurance coverage for settlements.
A buyback could dramatically increase the size of settlement payments to the estimated 100 people who have come forward so far to allege abuse by clergy or other employees of the church.
Stang's team has asked to hire Los Angeles-based Paul Richler, who advised creditors in other Catholic church bankruptcy cases, in San Diego; Fairbanks, Alaska; Wilmington, Del.; and Portland, Ore. In the Portland case, involving the Oregon Province of the Society of Jesus, or Jesuits, a buyback resulted in a $118 million insurance payment that was the core of a $166 million settlement with abuse victims, according to Stang.
"We hope to be part of the negotiations with the insurance companies - if they'll even negotiate over their exposure," Stang said.
Attorneys for the archdiocese do not speak publicly on the case and referred all questions to the church.
The Wisconsin Court of Appeals ruled last year that the archdiocese could not tap its insurance policies to cover sex-abuse settlements because its actions - moving problem priests from parish to parish without telling families about their histories - was intentional, rather than accidental. The archdiocese appealed to the Wisconsin Supreme Court, but the case is on hold because of the bankruptcy.
In a buyback, the insurer pays less than the full value of the coverage. It's a relatively common option used by insurers to limit their exposure and provide a degree of certainty in an outcome, said Tom Baker, a professor at the University of Pennsylvania Law School who has an expertise in insurance law.
"It's something they do if they want to exit a relationship, usually if there is uncertainty about the underlying liability of coverage," said Baker.
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