Delaware Judge Orders Insurers to Pay in Diocese Bankruptcy

By RANDALL CHASE | September 12, 2011

A Delaware bankruptcy judge on Friday ordered insurance companies to pay their share of a settlement with priest sex abuse victims that is the foundation of the Catholic Diocese of Wilmington’s reorganization plan, and he angrily turned aside the insurers’ arguments.

The insurers had balked at contributing $15.4 million toward the $77 million settlement with some 150 abuse survivors until appeals filed by two priests identified by the diocese as child abusers are resolved. Judge Christopher Sontchi replied that he was “flabbergasted” that the insurers would threaten to scuttle the agreement because of a “technicality.”

“While I understand the legal arguments of the insurers, I think it’s one of the clearest examples I’ve seen in my career of someone exerting form over substance,” Sontchi said. “Frankly, it’s the kind of thing that lawyers do that makes nonlawyers have the opinion they do of lawyers.”

The two priests are appealing court-ordered restrictions prohibiting the diocese from using its assets to make any future payments to priests identified by the diocese as pedophiles. The insurers argued that a final order could not be entered until the appeals by the priests are resolved.

Under the diocese’s reorganization plan, the payments are due Sept. 26.

“We’re not the bad guys here. We’re not acting in bad faith,” said Russell Roten, an attorney representing Lloyds of London. “What we’re trying to do is figure out how to deal with a real legal problem. … We are prepared to honor our settlement agreements when we get finality.”

But an angry Sontchi agreed with the diocese and other supporters of the settlement that the appeals by the priests have nothing to do with the provisions of the bankruptcy plan that involve the insurers.

Sontchi noted that the settlement was the result of countless hours of painstaking negotiations over several months, and that the position taken by the insurers threatened to kill it. He ordered them to pay the amounts they agreed to pay by the Sept. 26 deadline.

“I am flabbergasted, disappointed that the insurers would destroy that settlement, blow up this case, on a technicality,” he said, rejecting the insurers’ arguments that he no longer had jurisdiction in the case because of priest appeals.

The judge also noted that even if an appeals court were to disagree with him on prohibiting payments by the diocese to pedophile priests, there was virtually no chance that the sections of the reorganization plan pertaining to the insurers would be affected. He also said any delay of payment to the abuse survivors would inflict upon them “significant, perhaps irreparable harm.”

Sontchi’s ruling came at the end of a hearing during which attorneys for the diocese and the insurers proposed a variety of legal scenarios for resolving the dispute over the insurance payments. They included carving out the insurance provisions of the reorganization plan in a separate nonappealable confirmation order, and letting the Sept. 26 funding deadline pass, then asking a federal district court to dismiss the priest appeals as moot and sending the case back to the bankruptcy court.

To resolve an issue raised by one priest who is challenging his inclusion on a 2006 diocese list of pedophile priests, Teresa Currier, an attorney representing insurers, suggested that Sontchi just remove the two priests from the list of priests prevented by the bankruptcy court from receiving payments by the diocese.

“The solution of settling with these priests may not be perfect, but it may be the best thing to do right now,” Currier said.

“You want me to allow a person who abused children to get paid?” the judge responded incredulously.

Thomas Neuberger, an attorney representing almost 100 alleged abuse victims, said removing the two priests who have filed appeals from the list of those prohibited from receiving payments from the diocese would amount to giving in to blackmail.

“We, of course, could never countenance the court retreating from findings it has made … and that somehow the rights of child molesters should be protected over the rights of victims of child abuse,” he said. “… It is an affront to any person’s conscience and moral fiber to even run such a suggestion up the flagpole.”

The diocese, which serves about 230,000 Catholics in Delaware and the Eastern Shore of Maryland, filed for Chapter 11 bankruptcy protection in October 2009 on the eve of the first in a series of trials scheduled in lawsuits filed by alleged victims of priest abuse.

Its reorganization plan is based on a $77.4 million settlement with some 150 alleged victims of priest sex abuse. The Catholic Diocese Foundation, a charitable foundation that is separate from the diocese, would provide about $54 million of that total. In return, the diocese, its parishes and affiliated entities would be released from legal claims related to the church sex abuse scandal.

The plan also requires church officials to turn over internal documents detailing how the diocese handled pedophile priests, who in many cases were allowed to continue to prey on children for years after their abuse became known.

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