Archdiocese of St. Paul and Minneapolis officials are concerned criminal charges filed against the archdiocese might compromise insurance coverage for clergy sex abuse by bolstering insurers' arguments for denying claims.
Ramsey County Attorney John Choi has charged the archdiocese with six gross misdemeanors for allegedly failing to protect the victims of a former St. Paul priest. At most, the archdiocese faces fines of $18,000, not much for an organization worth millions.
The archdiocese, however, warned in a recent bankruptcy filing that a criminal conviction may affect its insurance coverage for existing and future sex abuse claims and create ripple effects on the church's bankruptcy proceedings.
Archdiocese insurers were already challenging their coverage liability months before the criminal charges — and the insurers' case now becomes stronger, University of Minnesota law professor Christopher Soper said.
"The charges allege that the archdiocese knew about the abuse and didn't protect the child," Soper said. "That would likely preclude insurance coverage for the charged conduct because most insurance policies don't cover intentional acts or criminal acts."
It's clear why insurers fight. The financial stakes are high.
From 2004 to 2014, the nation's Catholic dioceses and other entities reported incurring more than $2.7 billion in sex abuse costs. That includes settlements, victim therapy, offender support and attorneys' fees, according to surveys conducted by the U.S. Conference of Catholic Bishops.
Overall, insurance covered 32 percent of sex abuse costs. In some abuse cases, of course, insurance covered more or less — or nothing.
The Twin Cities archdiocese and abuse victims and their attorneys hope there'll be a big pot of insurance money to compensate victims. Roughly 100 claims have been filed by alleged abuse victims seeking compensation. Victims have until Aug. 3 to file claims for abuse suffered even several decades ago.
The archdiocese itself doesn't seem to have much money or other assets. It reported about $27 million in net assets as of May 31, so the insurance coverage is crucial.
Regardless of what happens in the criminal case, it could affect coverage for many more abuse claims, subjecting them to at least greater scrutiny if not denial.
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"The criminal indictment may lead the insurance companies to believe that it merits further investigation even for the old claims to find out whether there was intentional wrongdoing back in the '50s, '60s and '70s," said Timothy Lytton, author of "Holding Bishops Accountable: How Lawsuits Helped the Catholic Church Confront Clergy Sexual Abuse."
"The terms and conditions of an insurance contract will include certain exclusions and among those exclusions are intentional wrongdoing," he added.
Insurers could have yet more legitimate reasons to reject claims.
"The insurer may hold that information was intentionally withheld that was relevant to the writing of insurance policies, something material that impacts the risk associated with writing that policy," said Robert Hartwig, president of the Insurance Information Institute, an industry trade group. "That is grounds for rescission of a policy."
Some policies exclude claims involving actions that could be expected.
In 2007, the diocese of Winona went to federal court to contest an insurer's stand that it was not obligated to pay damages for a sex abuse claim because the actions of the priest involved could have been expected. Federal judge Richard Kyle ruled the insurer had no duty to indemnify the diocese.
It's not just the criminal charges that stand to bolster the case for the 20 or so insurers that provided the archdiocese coverage since the 1940s. For years, victims have argued publicly and in court that in many cases the archdiocese knew priests had been accused of sexual abuse but kept them in parishes and did not call police.
That positioned abusers to harm more victims. Victims' attorneys have charged that happened repeatedly. But in doing so, they may argue themselves out of insurance coverage. Insurers could use the plaintiffs' attorneys' arguments to make a case for denying coverage.
Last November, the Twin Cities archdiocese sued its insurance companies to try to resolve the carriers' obligations to cover clergy sex abuse claims. Those insurers covered the archdiocese from the 1940s through the 1980s.
The archdiocese wants them to contribute to a settlement of claims filed by people alleging sexual abuse by priests. But insurers have balked, denying claims or reserving the right to reject claims. The coverage dispute is now part of archdiocese bankruptcy proceedings, which are in mediation.
Archdiocese officials declined to comment on the prospect of losing insurance coverage. Their concern, however, was expressed in a request to the bankruptcy judge to hire former federal prosecutor Joseph Dixon at $400 an hour to defend the church.
"Insurance companies are always trying to limit their exposure. And I suspect that they will use these indictments in an effort to try to do so. But how successful they will be in those efforts is entirely speculative," said attorney Paul Richler, who's been involved in several bankruptcy cases of religious organizations and helped abuse victims obtain compensation from insurers.
Disputes over insurance coverage are typical, he added.
Archdiocese officials would not respond to any questions about how much it expects its insurance coverage could compensate abuse victims.
In an emailed statement, archdiocese attorney Charles Rogers wrote the archdiocese "is not in a position to respond to these questions" because the court-ordered mediator has ordered the parties to keep discussions confidential.