Bankruptcy judge urges mediation between diocese, insurers, creditors

Mike Latona/Catholic Courier    |    12.02.2019
Category: Local News


ROCHESTER — A federal bankruptcy-court judge has urged the Diocese of Rochester, its insurers and creditors to pursue mediation regarding insurers’ obligations to contribute to an estate for the satisfaction of creditor demands in the diocese’s Chapter 11 bankruptcy case.

Seeking an opportunity to argue in state Supreme Court that it could deny coverage of sexual-abuse claims against the diocese, the Continental Insurance Co. had filed an Oct. 29 motion for relief from the stay of litigation imposed by bankruptcy proceedings. In response, on Nov. 14 the diocese lodged an adversary complaint — which was supported by the Committee of Unsecured Creditors — against Continental and 11 other insurance companies, asserting the insurers are attempting to limit their coverage liability.

According to the complaint, “The Insurers have failed to acknowledge their full coverage obligations to (a) defend or pay for the defense of the Diocese and/or (b) indemnify the Diocese, including the funding of any past or future settlements or judgments, in connection with the Underlying Actions and Claims, despite the Diocese’s timely request that they do so.”

During a Nov. 21 hearing before Bankruptcy Court Judge Paul Warren, attorneys representing the diocese, insurance companies and the unsecured creditors’ committee debated whether litigation related to diocesan insurance coverage can take place outside of federal bankruptcy court, as requested by Continental.

Representing the Rochester Diocese at the hearing, attorney Stephen A. Donato argued that moving cases out of bankruptcy court would significantly slow the speed at which they can proceed. Donato argued for retaining all aspects of the case in federal bankruptcy court, and for settling via mediation the question of insurers’ responsibilities to cover abuse claims.

Ilan Scharf, an attorney representing the creditors’ committee, agreed with Donato. Both attorneys noted that mediation typically has been employed when other dioceses and archdioceses have filed for reorganization due to sexual-abuse claims.

Warren asked the parties to develop a plan for mediation by Jan. 14, when he will preside at the next scheduled hearing in the diocesan bankruptcy case.

In another development, Warren also granted the Rochester Diocese’s request for a waiver from Section 345B of the U.S. Bankruptcy Code, which calls for investments of an entity under reorganization to be converted into federally guaranteed securities in order to minimize investment risk. The unsecured creditors’ committee supported the diocesan request.

Representing the diocese, attorney Charles Sullivan successfully argued that approximately $58 million in diocesan investments are being managed responsibly by private investment firms and would be negatively affected by the significantly lower rate of return paid on federally backed investments.

In granting the waiver, Warren instructed the diocese to provide regular statements of its investment activity, and to be prepared for alternative action should the stock market take a turn for the worse.

The Nov. 21 hearing lasted approximately two hours and was attended by Bishop Salvatore R. Matano, who did not speak during the proceedings.

On Sept. 12, Rochester became the state’s first — and thus far, only — diocese or archdiocese to file for Chapter 11 bankruptcy protection subsequent to New York state’s Child Victims Act. In opting for this action, Bishop Matano explained that the diocese would be unable to satisfy numerous claims that were filed after Aug. 14, when the CVA opened a one-year filing window for sexual-abuse claims that previously had been barred by statutes of limitations.

According to Lisa Passero, diocesan chief financial officer, the diocese has approximately $68 million in assets but more than $100 million in liabilities, mostly related to Child Victims Act lawsuits.

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