Lawyers' Strategies Vie in Bankruptcy Case
Martinez, Demetria, National Catholic Reporter
ALBUQUERQUE, N.M. -- The two major insurance companies that have primarily covered the Sante Fe archdiocese since 1977, Interstate insurance and the financially troubled Lloyds of London, are refusing to pay claims that Archbishop Michael Sheehan says approximate $50 million.
Those claims result from the approximately 35 suits currently facing the archdiocese. An estimated 45 priests abused some 200 people over a 30-year period (NCR, Nov. 8).
Meanwhile, the legally besieged archdiocese, which has a population of 300,000, is appealing to parishes to contribute funds or property to prevent the archdiocese from seeking Chapter 11 bankruptcy protection, thus becoming the first U.S. diocese to declare bankruptcy.
The insurance dollar amounts explain part of the story. According to attorney Bruce Pasternack, who represents many of the sex abuse plaintiffs, the diocese self-insures for the first $60,000. Lloyds insures for coverage from $60,000 to $200,000; Interstate from $200,000 to $5 million; Lloyds from $5 million to $10 million -- $100 million in the aggregate, Pasternack said. Insurance coverage from Interstate first came into force in 1979.
Twelve insurers, including Lloyds and Interstate, in July asked a federal court in Santa Fe to determine their coverage liability for the years 1965 to 1984. The declaratory action was taken the day before the archdiocese was scheduled for a mediation session with plaintiffs, according to pleadings files with the court.
Subsequently, the archdiocese filed counterclaims in federal court. In state court, it also sued Lloyds and two other carriers (that were not party to the federal suit by the insurers); the two had written coverage prior to Interstate's issuing of its policy in 1979.
Determination of these legal actions may have to await resolution of lawsuits in court or until after they're settled, potentially a very long process.
Outside the courtroom, the lawyers explain their positions this way:
"It appears that the actions of Lloyds and Interstate may be designed to have the affect of forcing the archdiocese into bankruptcy," said Pasternack. "One irony of this is that Lloyds of London and Interstate Insurance may be mounting the most effective attack on the Catholic church since the advent of Islam.
"The tactic that one can conjure is that by refusing to pay claims and forcing the archdiocese into bankruptcy, the insurance companies may expect that the plaintiffs would prove intentional misconduct, which would not be dischargeable in bankruptcy," meaning it couldn't be wiped out as a debt, Pasternack said. Also, intentional misconduct would be uninsurable.
"This may be a clever business maneuver. They'd be walking away without paying a penny," he said.
Richard F. Johnson, a Chicago attorney representing the Lloyds syndicate that issues coverage for Santa Fe, disagreed.
"We certainly have no interest in forcing the archdiocese into bankruptcy," Johnson told NCR. "Our concern is whether or not there was coverage under the policies. …