In a reply filed Wednesday, the Diocese slammed arguments made by the Official Committee of Unsecured Creditors in an objection filed last week, saying the objection ignores the difficulties of pursuing the Diocese’s insurance claim against Certain Underwriters at Lloyd’s, London, and Certain London Market Insurance Companies and Interstate, and inflates the amount the Diocese could recover in litigation.

The $35 million deal should also push the Diocese’s other insurers back to the negotiating table, the Diocese argued, which would bring even more money around for abuse survivors to recover as part of an eventual reorganization plan, according to the brief.

The Diocese sought Chapter 11 protection in September 2019, citing hundreds of sexual abuse suits sparked by the New York Child Victims Act and the costs associated with those suits.

The Diocese filed insurance claims suits against its insurers after it was denied coverage and reached the deal with Lloyd’s and Interstate in June, resolving the insurance dispute with an agreement to set up a trust fund to compensate abuse survivors, with the insurers making a $35 million initial payment, according to court documents.

The Committee, however, objected last week, arguing that the “low value” settlement was unacceptable, as the Diocese could have continued to prosecute its insurance claim in court and potentially gotten hundreds of millions, if not billions, of dollars to put toward abuse survivors. After the objection was filed, several groups of survivor claimants filed joinders to that objection, adopting the same arguments.

In Wednesday’s reply, the Diocese said the Committee was ignoring the numerous defenses the insurers had proffered in that suit, saying there is no guarantee of prevailing in that suit and a $35 million settlement was better than the prospect of losing coverage entirely, calling the committee’s expectations “fanciful.”

Even if the abuse survivors’ claims could result in a large jury verdict, that doesn’t necessarily translate into a high insurance settlement value, the Diocese argued, saying the committee offered no justification for inflating the expected payout by “orders of magnitude” compared to payouts in similar circumstances.

While the Committee “shrugged off” the prospects of the insurers’ defenses, the Diocese pointed out several defenses that could strip it of coverage entirely.

In addition, the settlement is only the first step, the Diocese said, as other insurers are more likely to reach an agreement if this is approved, and the settlement deal is contingent on a successful Chapter 11 reorganization plan, which will protect the interests of creditors.

Jeff Anderson of Jeff Anderson & Associates PA, representing one group of survivors joining the objection, told Law360 on Thursday that the settlement effort is hurtful to survivors by not including them in the process, calling the bid to “jam down a settlement” an outrage. He said he will address the court to say that the settlement is doing further harm to survivors by not giving them a voice.

“They were cutout of power as kids and this effort by the bishop is a repeat of the abuse of power,” he said. “It is wrong. They are wrong in trying to do it and on behalf of the 169 survivors whom we represent in the Diocese of Rochester, we will make the survivors’ sentiments known.”

Ilan D. Scharf of Pachulski Stang Ziehl & Jones LLP, representing the Committee, said they intend to respond in court to the reply brief, and they continue to oppose the settlement as inadequate.

Representatives for the Diocese could not immediately be reached for comment Thursday.

The Diocese is represented by Stephen A. Donato, Charles J. Sullivan and Grayson T. Walter of Bond Schoeneck & King PLLC.

The Committee is represented by Ilan D. Scharf, James I. Stang, Iain Nasatir, James Hunter and Brittany M. Michael of Pachulski Stang Ziehl & Jones LLP and Timothy W. Burns and Jesse J. Bair of Burns Bowen Bair LLP.

Certain objectors are represented by Jeff Anderson of Jeff Anderson & Associates PA.

Lloyd’s is represented by Catalina J. Sugayan of Clyde & Co. US LLP and Russell W. Roten of Duane Morris LLP.

Interstate is represented by Charles E. Jones of Moss & Barnett PA and Peter McNamara of Rivkin Radler LLP.

The case is In re: The Diocese of Rochester, case number 2:19-bk-20905, in the U.S. Bankruptcy Court for the Western District of New York.

–Editing by Orlando Lorenzo.

https://www.law360.com/articles/1401194/rochester-diocese-defends-35m-deal-to-cover-abuse-claims