Major Insurers Agree to Settle Suit in Archdiocesan Bankruptcy

By Annysa Johnson
Milwaukee Journal Sentinel
November 12, 2013

http://www.jsonline.com/news/religion/one-insurer-agrees-to-pay-in-milwaukee-archdioceses-bankruptcy-case-b99140727z1-231617231.html

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.

A group of insurers has agreed to pay the Archdiocese of Milwaukee an unspecified sum to settle a lawsuit over its liability for sex abuse claims filed against the church, a move hailed as a major step toward a resolution of the archdiocese's nearly 3-year-old bankruptcy.

Under the terms of the agreement still to be finalized, London Market Insurers, including Lloyd's of London, would effectively "buy back" policies they sold to the archdiocese in return for a release of liability for any current or future claims, according to court records.

Those general liability insurance policies, uncovered by creditors during the bankruptcy proceedings, could cost the insurers hundreds of millions of dollars if they were ruled enforceable, according to victims' attorneys.

Church spokesman Jerry Topczewski said Tuesday that the settlement amount would be spelled out in the archdiocese's forthcoming plan of reorganization, which must be approved by the bankruptcy court for it to exit Chapter 11. He said he did not know when that would be filed.

Settlement talks are continuing with a second carrier, Stonewall Insurance, according to court records.

"This is just one part of a complex plan that will address the demands of all the creditors," said Topczewski, who serves as chief of staff to Milwaukee Archbishop Jerome Listecki. "We're as anxious as anyone to move this forward."

Michael Finnegan, whose Minnesota law firm represents most of the 575 men and women who filed sex abuse claims in the bankruptcy, criticized the settlement process for excluding victims. He said that was a first among bankruptcies filed by U.S. Catholic dioceses.

"Their exclusion from the process falls far short of Archbishop (Jerome) Listecki's promise to survivors at the outset of this case to treat them fairly and equitably," Finnegan said.

Lawyers for London Market Insurers and the archdiocese's creditors committee declined to comment.

It is not immediately clear what creditors would benefit from the settlement. The archdiocese has filed motions to throw out virtually all of the claims alleging sexual abuse. Other creditors include the archdiocese's own pension plans, its health care plan for retired priests, and at least one bank with a nearly $5 million mortgage on church property. Certain attorney fees also would come out of the settlement amount, under a ruling this year by U.S. Bankruptcy Judge Susan V. Kelley.

The Archdiocese of Milwaukee filed for Chapter 11 bankruptcy protection in January 2011 as a way to settle the mounting claims by men and women who alleged they were sexually assaulted as children by priests and other church workers in the 10-county archdiocese.

The case has become one of the most contentious and expensive Catholic Church bankruptcies to date in the United States, as attorneys wrangle over which claims should be compensated and what archdiocese assets should be tapped for any settlement.

Legal fees and expenses had exceeded $10 million by July, according to court records. An updated number was not available Tuesday.

The insurance policies are one of the last large assets still in play. A lawsuit over the archdiocese's cemetery trust fund, worth more than $50 million, is on appeal before the 7th U.S. Circuit Court of Appeals.

Kelley has already rejected efforts by the creditors to pursue the assets of the archdiocese's 200-plus parishes, including more than $35 million in a Parish Deposit Fund the archdiocese transferred off its books in 2005. And lawyers for the creditors and the church have postponed for now any disputes over the archdiocese headquarters complex known as the Cousins Center, once valued at $10 million; and the Faith in Our Future fund, a trust created in 2008 to hold the proceeds of a $105 million capital campaign launched by then-Archbishop Timothy Dolan, now cardinal of New York.

The archdiocese and its insurers asked U.S. District Judge Rudolph T. Randa for a 60-day stay of court proceedings in September so they could enter settlement talks. They filed a motion Monday seeking an extension of the stay to finalize their agreement.

A state court had ruled previously that the archdiocese could not tap its insurance policies in cases where it was accused of fraud, the underlying allegation in the bankruptcy.

But the archdiocese sued London Market Insurers, Stonewall and others in federal court alleging the language in their policies left them liable.