Parishes, schools to be shielded from lawsuits in Archdiocese of Baltimore bankruptcy for now

A federal bankruptcy judge on Tuesday agreed to shield the Archdiocese of Baltimore’s parishes and schools from lawsuits, at least for now, in order to protect insurance policies that are likely some of the archdiocese’s most important assets.

The decision means that childhood sexual abuse survivors will not be able to file lawsuits against an individual parish or school if the institution was covered by the same insurance policy as the archdiocese.

The judge’s order shielding those institutions is preliminary. A legal fight over the church’s assets is almost certain to come later as plaintiff’s lawyers seek compensation and other benefits for sexual abuse victims in the bankruptcy.

The archdiocese’s lawyers on Tuesday presented the move as an effort to shield assets that will later be distributed among victims with claims against abusive members of the clergy and church officials that protected them.

RELATED: Maryland’s Child Victims Act takes effect: What to expect in the days ahead

If survivors file lawsuits against individual parishes that are covered by the same insurance policies as the archdiocese, their potential winnings in court would diminish the total amount available for distribution from the policies later, they said.

U.S. Bankruptcy Judge Michelle M. Harner agreed that the stay was necessary, granting an interim order that will be revisited later. Lawyers representing abuse survivors also agreed to extend the stay, at least temporarily.

“I do view the insurance policies as a very important asset to this estate,” Harner said.

The archdiocese’s lawyers said in court that they expect an adversary proceeding against its insurers in order to establish that sexual abuse claims are covered under the policies.

The lawyers also revealed new information about the money that will be used to pay victims, which will be held in a compensation trust.

About 55% of the trust is expected to come from insurance policies, said Blake D. Roth, a lawyer with Holland & Knight LLP. The remainder of the trust’s value will be paid by the archdiocese and by parishes and schools, which are expected to contribute, Roth said.

What form those contributions will take remains unclear, and church lawyers declined to comment after Tuesday’s hearing.

The “covered parties” who will be protected from lawsuits include the archdiocese’s 153 parishes, schools covered under the archdiocese’s insurance plan, Catholic Charities, the Maryland Catholic Conference and other organizations associated with the archdiocese, according to court filings.

In separate filings, however, the archdiocese also claimed that assets belonging to these institutions and organizations are not archdiocesan assets.

Harner on Tuesday also granted the archdiocese’s requests to continue paying employees and making other routine payments, such as insurance premiums, so that the business can continue running during the bankruptcy proceedings.

The archdiocese also received permission to seal certain records to protect the identities of survivors and current employees. The archdiocese hired Epiq Corporate Restructuring LLC as the “noticing agent,” which will be responsible for keeping survivors up to date on the proceedings and protecting their identities.

The archdiocese on Friday filed for Chapter 11 bankruptcy, which allows for reorganization when an organization’s debts outstrip its assets. The archdiocese claims that it could not afford to handle a glut of childhood sexual abuse lawsuits that were expected to be filed this week, when Maryland’s Child Victims Act took effect.

The CVA eliminated the statute of limitations for all childhood sexual abuse claims and retroactively restored the right to sue in cases where the statute of limitations had already expired. That law is expected to face a swift constitutional challenge, but it will not involve the archdiocese, because all litigation against the archdiocese was halted with the bankruptcy filing.

Lawmakers passed the CVA just days after a damning report from the Maryland Attorney General’s Office found a long history of child sexual abuse in the archdiocese that involved at least 600 victims over decades.

Abuse survivors were livid at the timing of the bankruptcy filing — the archdiocese filed for reorganization before it faced any new lawsuits under the CVA, blocking survivors from bringing forth their claims in state courts.

Now, survivors will have to file their claims with the bankruptcy court, which will bring deadlines that undermine the intent of the CVA. Church lawyers on Tuesday suggested that the “bar date,” by which claims against the archdiocese must be filed in bankruptcy court, could be in four to nine months. The entire bankruptcy may take two years or more, one lawyer estimated.

Survivors will be able to file their claims under seal in order to protect their identities, though victims who wish to tell their stories could also elect to share the details of their abuse publicly, Roth said.

After the hearing, members of the Survivors Network of those Abused by Priests stood outside the federal courthouse and called on the church to withdraw the bankruptcy filing. The group also said they were heartened by the compassion Harner showed in court.

“This bankruptcy is not about corporate debt,” said Frank Schindler, a survivor and member of the organization. “This is about the lives of survivors. This bankruptcy is intimately connected with the abuse of children, and that’s what it’s all about.”


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