A recent decision by a bankruptcy judge concerning the Diocese of Camden, New Jersey, has highlighted the intricate complexities surrounding compensation for sex-abuse survivors in religious institutions. Judge Jerrold Poslusny rejected the diocese’s bankruptcy plan, putting a spotlight on the growing discord among survivors, religious organizations, and insurance companies in the resolution of such sensitive cases.
Key Points:
- There are Concerns was the appointment of a “neutral third party” with the power to determine the value of each survivor’s abuse claim.
- The Judge criticized the plan for allowing lawyers representing the survivors to collect at least one-third of the payments for unvetted claims as a contingency fee.
- Insurance settlements have historically been a large part of the compensation mechanisms in court-approved reorganization plans involving bankruptcies stemming from sex abuse cases.
- Judge Poslusny may also have wider-reaching consequences on the strategies employed by religious institutions in similar bankruptcy proceedings.
The Diocese of Camden, straining under the weight of numerous sex-abuse lawsuits, had formulated a plan to contribute over $87 million to compensate 360 abuse survivors as part of its chapter 11 bankruptcy proceedings. The proposal also included a provision allowing survivors to seek additional compensation from insurance companies once the bankruptcy was resolved. However, Judge Poslusny rejected the proposal, citing several critical issues that raised questions about the plan’s transparency and fairness.
First on the judge’s list of concerns was the appointment of a “neutral third party” with the power to determine the value of each survivor’s abuse claim. He was apprehensive that the survivors would exert too much influence over this neutral party, thereby potentially inflating the value of claims and increasing the financial burden on insurers. Second, Judge Poslusny criticized the plan for allowing lawyers representing the survivors to collect at least one-third of the payments for unvetted claims as a contingency fee. He made it clear that he could not approve a plan that allows attorneys to file “invalid and fraudulent claims without consequence.”
This decision not only affects the parties directly involved but also brings to light the broader implications for insurance companies, which are pivotal in settling abuse compensation. Insurance settlements have historically been a large part of the compensation mechanisms in court-approved reorganization plans involving bankruptcies stemming from sex abuse cases. This includes high-profile cases like those involving the Boy Scouts of America and various other Catholic dioceses. Judge Poslusny’s ruling emphasizes the need for a robust mechanism that protects insurers against potentially inflated or fraudulent claims, especially given that these companies are often on the hook for a significant portion of the payouts.
Responses from legal representatives of the involved parties were mixed. Richard Trenk, an attorney for the diocese, expressed a willingness to address the court’s concerns, while Tancred Schiavoni, who represents one of Camden’s insurers, Chubb’s Century Indemnity, argued that the problems couldn’t be remedied by mere “cosmetic changes.”
The ruling by Judge Poslusny may also have wider-reaching consequences on the strategies employed by religious institutions in similar bankruptcy proceedings. Previously, some dioceses like Rochester, New York, had pursued a path to exit bankruptcy without finalizing insurance deals, providing survivors the right to litigate for additional insurance coverage after the bankruptcy case. Such strategies may now be rendered ineffective or at least questionable in light of this new decision.
In conclusion, the failure of the Diocese of Camden to win court approval for its bankruptcy plan reveals an intricate, evolving landscape where the rights and interests of sex-abuse survivors, religious institutions, and insurance companies intersect in contentious ways. Judge Poslusny’s decision underscores the urgency for more transparent and equitable mechanisms for compensating abuse survivors. It serves as a cautionary tale that points to the complexities and challenges facing other religious organizations as they navigate through the thorny legal and moral landscape of abuse settlements.
