BUFFALO (NY)
Buffalo News [Buffalo NY]
July 31, 2023
By Jay Tokasz
The Buffalo Diocese faces more pressure to make a deal with child sex abuse survivors after Catholic dioceses in Rochester and Syracuse recently took major steps toward exiting their Chapter 11 bankruptcy proceedings, according to legal experts.
The Syracuse Diocese announced Thursday it will pay abuse victims at least $100 million, and possibly more, through insurance funds, while Rochester last week negotiated a new deal with victims that now includes some insurance money, and would pay at least $126 million toward a settlement.
Five years later, despite promises to do right by abuse victims, the diocese has not paid a penny in damages to an estimated 900 people who filed claims alleging they were sexually abused by priests or other diocese employees.
The proposed deals in Rochester and Syracuse still must be approved by a vote of victim creditors and confirmed by a federal bankruptcy judge, but they provide the Buffalo Diocese with a potential path forward in resolving what has been a lengthy and arduous reorganization effort now in its 40th month.
Mediated talks between the Buffalo Diocese and abuse survivors are ongoing, although the status of the negotiations is unclear because the parties are bound by a gag order.
The diocese’s main lawyer, Stephen A. Donato, in June told Chief Judge Carl L. Bucki of the U.S. Bankruptcy Court in the Western District of New York that he was “certainly optimistic that we’re going to make significant headway in two more sessions, July and August.”
Legal and professional fees paid by the Buffalo Diocese have ballooned to $12.5 million, prompting the federal judge overseeing the diocese’s Chapter 11 bankruptcy case to remark that he was puzzled over how the diocese was able to afford such costs.
A spokesman for the diocese had no comment this week on what impact, if any, the deals in neighboring dioceses might have on settlement talks in Buffalo, which has more than 900 abuse claims, roughly double the number in Rochester and in Syracuse. The lead attorney for the committee of unsecured creditors in Buffalo, which represents child sex abuse survivors, did not respond to an email and a voicemail seeking comment.
The Syracuse Diocese filed for Chapter 11 bankruptcy protection in June 2020, about three months after the Buffalo Diocese’s filing, and nine months after the Rochester Diocese.
The announcement this week in Syracuse made it clear that bankrupt dioceses continue to struggle to get insurance companies to the negotiating table, legal experts said.
The $100 million to victims includes $50 million from the Syracuse Diocese, a $45 million contribution from parishes within the Syracuse Diocese, and $5 million from other Catholic entities – but nothing from insurance companies, at least not yet.
“The mediator’s priority was to reach a settlement with the Diocese and its entities first and then pursue insurers. The agreement does specify that both parties, the Official Committee of Unsecured Creditors, and the Catholic Family, will explore a resolution in claims involving insurance,” the diocese said in a question-and-answer explanation of the deal that accompanied its news release. “Spending additional time in mediation would only add to the mounting legal expenses and possibly expose the Diocese and its entities to further legal action. To date, the Diocese has paid nearly $11 million in legal expenses.”
More than three dozen Buffalo Diocese properties could soon be appraised for current values that ultimately may factor heavily into a settlement with sexual abuse claimants in the diocese’s Chapter 11 bankruptcy court.
The Buffalo Diocese has spent more than $12.5 million on legal and professional fees in its bankruptcy.
Insurance coverage has played a major role in settling abuse claims in many previous Catholic diocese Chapter 11 cases dating back to 2004. Of the nearly $800 million in bankruptcy settlements reached by 15 Catholic dioceses, archdioceses and religious orders from 2004 to 2020, more than half of the funds came from insurers, according to research by Pennsylvania State University law professor Marie T. Reilly.
The Buffalo Diocese bought insurance from at least eight companies between 1974 and 2019, and its lawyers have said insurance would be the diocese’s largest and most important asset.
A bankruptcy filing typically had helped bring insurers to the negotiating table on abuse claims, but legal experts said that has changed in recent years.
“What we are seeing is an entire paradigm shift in how these bankruptcies resolve and move forward, compared to how they have been traditionally handled. You are now seeing more and more bankruptcy settlement announcements between a Diocese and the Committee of Survivors when the insurance carriers refuse to fairly negotiate or simply delay,” said Anelga Doumanian, a partner with the Seattle-based law firm Pfau Cochran Vertetis Amala, which represents about 65 clients with claims against the dioceses of Buffalo or Rochester.
Bishop Michael W. Fisher said the diocese was “actively engaged in good faith negotiations” with sex abuse survivors and insurance carriers to settle the case.
In 2022, a federal bankruptcy judge approved a proposal by Camden, N.J., diocese to pay $87.5 million into a trust for survivors, with a provision that would allow victims to sue insurers for additional damages.
In the fall, the Rochester Diocese reached a similar settlement with abuse victims, agreeing to convey its coverage rights to a settlement trust on behalf of 475 sex abuse claimants, along with $55 million in diocese and parish funds. In exchange, the diocese and its parishes and schools will no longer have to defend against Child Victims Act lawsuits claiming sex abuse involving priests and other employees.
Since then, the diocese and creditor’s committee negotiated deals with four insurers to contribute an additional $71 million, bringing the trust total to $126 million, the diocese said in court papers filed July 21.
A holdout is Continental Insurance Co., which is believed to have the highest exposure of any of the Rochester Diocese insurers.
Continental in 2022 had offered $63.5 million toward a settlement, and the diocese accepted it. But the creditors committee rejected it as far too low, and the deal was scrapped.
To mark the fifth anniversary of the start of the sexual abuse scandal in the Buffalo Diocese, The Buffalo News spoke with the two whistleblowers, as well as a former bishop and others who played a central role in the abuse scandal that led to state and federal investigations and the bankruptcy of the diocese.
The company said in court papers earlier this week that it had made additional offers, with higher sums that the creditors committee also rejected.
“Based on these interactions, Continental has concluded that there is no reasonable amount it could offer that the committee would presently be willing to accept,” attorney Jeffrey A. Dove said in court papers.
Dove said the company will file its own plan or reorganization for the diocese that provides “guaranteed additional funding from Continental that will exceed the $63.5 million to which Continental and the Diocese previously agreed.”
Continental’s plan will allow survivors to choose between a guaranteed, fixed sum paid by Continental to the trust, and litigating against the company, according to court papers.
The Syracuse reorganization plan is the latest by a diocese to work around the insurance companies.
Legal experts said it is difficult to predict whether a Chapter 11 settlement plan in one diocese will impact another, because what those dioceses own in terms of property and other assets and their insurance profiles can be dramatically different.
Attorney Stephen Boyd said he couldn’t comment on what impact the movements in the Rochester and Syracuse dioceses will have on the Buffalo negotiations.
“But I think it’s fair to say that anytime these cases settle, they’re always brought up in discussions and will be throughout New York and throughout other states where there’s been a bankruptcy,” said Boyd, who, along with Jeff Anderson, represents 540 clients with claims in the dioceses of Buffalo or Rochester.