Six words – motion to approve proposed insurance settlements – were the basis for more than four and a half hours of oftentimes contentious debate Tuesday, Feb. 10, before Chief Judge Susan V. Kelley of the U.S. Bankruptcy Court for the Eastern District of Wisconsin.

 Seventeen lawyers, including those representing the Official Committee of Unsecured Creditors (the committee), the Archdiocese of Milwaukee and its insurers stated their cases during the hearing.

At the outset, Kelley told attorneys that as much as she wished to make a decision regarding the archdiocese’s Dec. 17, 2014, motion to approve proposed insurance settlements, she would not.

“Since we don’t yet have a decision in the cemetery trust appeal, I’m not going to decide this issue today,” she said.

On Aug. 1, 2013, in accordance with a ruling by Judge Rudolph Randa in U.S. District Court for the Eastern District of Wisconsin that more than $50 million held in trust for the perpetual care of Milwaukee Archdiocesan cemeteries could not be used to settle bankruptcy debts, Kelley dismissed the Cemetery Trust Litigation. On Aug. 25, the creditors’ committee appealed to the Seventh Circuit Court of Appeals, where oral arguments were held on June 2, 2014, and where a decision awaits.

The $10.3 million offer

“The big issue here is do the insurance policies cover the types of claims that the claimants are making here?” Kelley said. “Another issue is the settlement proposes to release not only the insurance companies who are making the payment in this judgment, but also the parishes. Is that release appropriate under the authority of bankruptcy law?”

Frank LoCoco, one of two attorneys representing the archdiocese, called the hearing a “significant day in the hard fought Chapter 11 proceedings.”

Noting the amount of settlement money being offered by Lloyd’s of London and other London Market Insurance Companies (LMI), OneBeacon Insurance Company, and Stonewall Insurance Company, he asked rhetorically, “Are we really going to turn away $10.3 million in insurance proceeds? Does the committee really want that? This is a lot of money to turn our backs on.”

Asked by Kelley to whom the money would go, LoCoco replied, “Class 9 claimants.”

According to the plan for reorganization filed by the archdiocese Feb. 12, 2014, Class 9 claimants may request therapy payment assistance from the therapy fund and each Class 9 claimant, defined in the plan as an archdiocesan abuse survivor claim subject to statute of limitations defenses, will receive a claim against the Insurance Litigation Trust. The plan lists 128 claims in that class.

Insurance companies seek ‘finality’

Russell Roten, one of two attorneys representing LMI, said his client was paying $4 million to buy back policies and $4 million for “release and injunction” which would protect them from being sued by current and future claimants.

“Reason we need the injunction is because first, after we pay this money in, other claimants come along, that we never heard of, and we get another 578 claims. We have to stop the potential of future claims coming directly against London,” he said. “Second point, related entities (parishes) claim to be additional assureds (those covered by an insurance company) under the policies. If the related entities are not protected by an injunction, then the same people who have filed claims here and other people the plaintiffs’ lawyers will dig up from time to time, will just sue the related entities. And the related entities will come back to us and say, ‘We have an insurance policy with you; you have to cover us.’ In both of those situations, we do not get finality.” 

He added, “If London is going to be subject to future litigation, which can amount to millions of dollars, and years and years of litigation, we’re not interested in going forward.”

In response to Kelley’s question as to how much money would be spent if the settlement were not approved, LoCoco said to litigate one case would cost, on average, $250,000. 

“Multiply that by 200 or 300 plaintiffs,” he added, calling the insurance settlements the “linchpin” to the plan for reorganization.

Mark Nelson, representing Stonewall, which is contributing $1.8 million to the proposed settlement, said the court has to wrestle with the fact “we’re sitting with $10 million.”

“If the court rejects that, I don’t know bankruptcy law, but I don’t know where you go from there because you would have $0. And I don’t know if there’s a way to approve a plan with $0 … If $10 million won’t do it, will $0 do it?”

‘Not minimizing what happened’

At one point during the hearing, Kelley spoke directly to those in the gallery, several of whom were abuse victim survivors.

“I know a few times some of you have been reacting to what’s been said. And I want you to understand these are legal arguments that we are making today. And they’re difficult, and when somebody is making a legal argument it does not necessarily mean that he or she is minimizing what has happened, doesn’t care about what happened to you or is not sympathetic to your situation. We are,” she said. 

Expressing appreciation for their patience, Kelley explained that victims needed to understand that Wisconsin law differed from California law, “where there were much larger settlements paid.”

“Our law in Wisconsin is different and in some ways it is limiting what the debtor has to pay and therefore what the insurance company has to pay,” she said. “I’m going to let the lawyers talk about the dollar amount and whether it’s enough, but I want you to understand that they are not talking about minimizing or in any way being critical of you, your claim or minimizing what happened to you.”

Kelley said that no additional hearing would be held, and that she would issue a decision in connection with confirmation of the plan of reorganization, after the Cemetery Trust Litigation appeal is concluded.