ROCHESTER (NY)
Rochester Beacon [Rochester NY]
August 1, 2024
By Will Astor
A two-day trial in the Roman Catholic Diocese of Rochester’s Chapter 11 bankruptcy wrapped up Tuesday.
A decision in that trial is one of the final pieces needed to fall into place before the now nearly five-year old bankruptcy can wrap up. The trial’s end leaves no clear indication of how soon the long-running case might conclude, however.
The diocese filed the bankruptcy in September 2019, a month after New York’s Child Victims Act took effect. The CVA created a two-year window during which survivors of long-past sexual abuse could pursue molesters who violated them as children but otherwise would have been protected by a statute of limitations.
Four hundred eighty-five survivors filed claims in the diocese case. Several have died while the case has wended its way through the court.
Meanwhile, as of May 31, the diocese has spent $14 million to pay lawyers, accountants and consultant working on the case. Those expenses mount in six-figure sums monthly. The May bill totaled $579,709.
In the trial, the Continental Insurance Co., also known as CNA, sued to collect damages from the diocese over an alleged breach of contract.
A verdict for the insurer—potentially on the hook to pay claims for 335 of the 485 sexual abuse survivors seeking reparations in the diocese bankruptcy—could upend a settlement painfully worked out among the diocese, abuse survivors and other insurers.
The trial began two weeks after survivors overwhelmingly approved a plan of reorganization jointly sponsored by the diocese and the bankruptcy’s official creditors committee, a body entirely made up of abuse survivors.
CNA is the lone holdout among the diocese’s liability carriers refusing to agree to the settlement outlined in the joint diocese/committee plan. CNA offered a rival plan. Survivors overwhelmingly voted it down.
The approved plan calls for the diocese, its 86 parishes and insurers to jointly contribute $127.3 million to a trust to pay survivors’ bankruptcy claims. Terms call for the diocese and its parishes as well as insurers contributing to the trust to be excused from further liability. As a non-contributor to the trust, CNA would not be excused from liability and could face further state court actions.
As proposed, the plan needs revisions to accommodate a June 27 U.S. Supreme Court ruling. The decision bars bankruptcy judges from excusing from liability parties that, like the diocese’s parishes, are not direct parties to a bankruptcy.
Lawyers for the diocese, the survivors committee and the diocese’s insurers are meeting to try to craft a fix that would let Bankruptcy Judge Paul Warren approve the joint plan.
In the meantime, CNA’s breach-of-contract claim poses a separate and potentially devastating obstacle to the plan’s confirmation.
In the court action, CNA claims the diocese breached a contract when it dropped out of settlement proposed in 2022 in which CNA agreed to contribute $63.5 million to a survivor-compensation fund.
The $63.5 million contribution was to have been CNA’s share of a $107.25 million pot of money that the diocese’s liability carriers, including CNA, proposed to contribute to a survivor-compensation fund.
Complaining that it had been left out of negotiations and that all the insurers’ proposed contributions were too low, the survivors committee nixed the 2022 settlement.
The diocese withdrew from the plan, while other insurers agreed to up their contributions to amounts reflected in the diocese’s and committee’s just-approved reorganization plan.
CNA’s rejected rival plan would have upped CNA’s contribution to $75 million, an amount the survivors committee characterized as unacceptably paltry compared to other insurers’ per-survivor contributions.
In the breach-of-contract claim, CNA seeks damages for time and money it claims to have spent to research the 2022 settlement deal. The insurer also seeks to have the diocese rather than itself pay claim amounts beyond the $63.5 million it would have contributed.
In oral arguments at trial, CNA’s lawyers maintained the 2022 settlement deal was a contract. Attorneys for the diocese and the survivors committee argued that the 2022 deal was just a proposal that would have been binding only had the deal been memorialized in a court-confirmed plan of reorganization.
CNA also presented expert witnesses to back its contentions that the $63.5 million contribution was a reasonable settlement amount and that it could reasonably argue to disavow some survivors’ claims.
Attorneys for the survivors committee presented their own sets of experts who sought to refute the insurance company’s experts’ claims on both counts.
Warren gave no indication that he favored either side’s positions.
In the meantime, the judge has scheduled an early September hearing to consider confirmation of diocese and survivor committee joint plan. It is not clear whether either the Supreme Court issue or the CNA breach-of-contract claim will be resolved by that time.
At the trial’s conclusion, Warren granted requests by CNA’s and the survivors committee’s lawyers to submit new, post-trial briefs. How much those new papers might delay a ruling is not clear.
Related
Abuse survivors approve diocese’s reorganization plan July 23, 2024In “Justice & Public Safety”
Diocese files reorganization plan March 24, 2023In “Justice & Public Safety”
Supreme Court ruling clouds Rochester diocese bankruptcyJuly 2, 2024In “Justice & Public Safety”