Gallup Diocese Headed Back into Mediation

By Elizabeth Hardin-Burrola
Gallup Independent
July 20, 2015

http://gallupindependent.com/

Attorneys for the Diocese of Gallup, along with attorneys for its insurance companies and attorneys for sex abuse claimants, are headed back into mediation with a new mediator.

At a status hearing in U.S. Bankruptcy Court Friday, Judge David T. Thuma, who noted he was “not a big fan of making people mediate if they don’t want to mediate,” told the attorneys he would be ordering them back into mediation, and he accepted their consensual recommendation for a new mediator, attorney Frank “Dirk” Murchison, of Taos.

“Let me leave you all with the notion that I’m going to enter an order to make you mediate with Mr. Murchison,” Thuma said at the conclusion of the hearing.

The new mediation session will be held in Albuquerque on dates that have yet to be determined. The Catholic Mutual insurance company, which insures the Gallup Diocese, has agreed to pay Murchison’s fees.

Last month’s unsuccessful mediation, conducted by retired U.S. Bankruptcy Judge Randall J. Newsome, was held in Phoenix June 10-11.

Conflicting views

Murchison’s selection as mediator was about the only subject all the attorneys could agree upon.

Much of the 68-minute hearing was devoted to discussions about the recently filed motions for relief from the automatic stay — although a hearing on that matter isn’t slated to be held until next month — and conflicting views about the Diocese of Gallup’s insurance coverage.

While attorneys for the diocese and the insurance companies had urged Thuma to order the parties back into mediation, attorneys representing sex abuse claimants expressed skepticism that mediation with the diocese and the insurance companies will be successful.

“This issue here, and I’m going to focus on the big issue that we have in reaching a settlement here, is the value of the damages here,” attorney Ilan D. Scharf said. “The dollar figure you’re going to put on the damages.”

Scharf, an attorney with the Unsecured Creditors Committee, stood in for the committee’s lead attorney James Stang. The committee represents the interests of sex abuse claimants in the case.

“The concern we have is that people on that side of the table, entities on that side of the table, do not view the value of the claims in the same universe that we’re looking at them,” Scharf said.

Understanding value

The Unsecured Creditors Committee recently filed a memorandum supporting motions by attorneys Robert E. Pastor and John Manly requesting Thuma lift the automatic stay in the bankruptcy case and allow three of their civil clergy sex abuse lawsuits to precede to trial in Arizona’s Coconino County Superior Court.

Taking the cases to trial, Scharf argued, would help all the parties involved in the bankruptcy to “get an understanding of what the value that a jury would grant” the sex abuse survivors.

Susan G. Boswell, the lead bankruptcy attorney for the diocese, disputed Scharf’s argument, and stated that one of the cases Pastor and Manly want to take to trial involves an uninsured claim.

“The claimant in that case can get, you know, I mean, name a number. Twenty million? Five million? Two million? It’s meaningless in the context of the assets of this case,” Boswell said, citing insurance coverage issues.

“We understand, your honor, the abuse is horrific,” Boswell added. “We understand that people deserve to be compensated, but we have to do it in the context of what there is here.”

“The value that a court or jury would give that claim will absolutely drive what the potential risk that every other entity involved, including the insurance companies and the debtors, sees with respect to what claims are really worth here,” Scharf responded.

Insurance issues

Although all the attorneys were careful not to disclose the confidential reasons why last month’s mediation was unsuccessful, Friday’s hearing made it apparent that insurance coverage — or lack of coverage in some cases — was an ongoing thorny issue.

“One of the difficulties that we have, your honor, is that we have coverage issues,” attorney Ed Mazel of the New Mexico Property Casualty Insurance Guaranty Association told Thuma. “And we have policy limit issues. And we have discrete issues that depend on interpretations of a contract. Not factual issues. Not valuing claims. We have discrete legal issues.”

Mazel, along with other insurance company attorneys Everett Cygal and Mark Ish, talked about various policies and coverage, statutory limits and aggregate limits, and the definition of insurance terms. Mazel expressed hope that Murchison, who has experience in insurance law, would be able to help the parties resolve the insurance issues.

According to Scharf, the Unsecured Creditors Committee had determined there was “substantial insurance” available for about one-third of the 57 sex abuse claims. A couple of claims involve some liability for the Franciscans, he said, a small subset involve potential contribution claims from other third parties, and another “15 or so” claims are covered by Catholic Mutual.

“We have done a top down analysis, claim by claim, and we think there is significant coverage here, you know, tens of millions of dollars of coverage available,” Scharf said of the Catholic Mutual claims.

No answers

Pastor, who filed 13 clergy sex abuse lawsuits against the Diocese of Gallup before Bishop James S. Wall halted the lawsuits by filing the Chapter 11 petition, said he and the other attorneys representing the sex abuse claimants weren’t buying the insurance companies’ arguments about coverage issues. Pastor asked Thuma to consider lifting the automatic stay if the mediation didn’t result in a settlement by a specific date.

“The coverage issues aren’t real,” Pastor said. “Intentional act exclusion, occurrence, stacking, not stacking — we’ve all dealt with them in every sex abuse case we have. And it’s my experience insurance companies, they need to feel that they’re going to be exposed to a significant risk before they move. And we need to have that backstop and that backstop is a jury trial.”

As the hearing concluded, Thuma wondered out loud to the attorneys what would happen if the second mediation fails.

“I don’t know what to do after that,” Thuma said. “Maybe we’ll cross that bridge when we come to it.”