Insurers that have not indicated they will pay claims from sexual abuse survivors currently have no standing t
o contest certain claims as they are being considered, a federal bankruptcy judge recently ruled in a case involving the Roman Catholic Diocese of Albany.
This summer as part of the bankruptcy proceedings that will determine how assets and insurance will be used to settle hundreds of lawsuits by s
urvivors of clergy sexual abuse, insurers for the diocese moved to object to about 50 claims by survivors. The Offic
ial Committee of Tort Claimants challenged the objections, arguing that the insurers lack standing to object because they are not a party in interest in the Chapter 11 cas
e. They are not a party in interest in the case because, having deni
d liability, they have no financial interest at stake, the committee maintained.
The insurers, London Market Insurers (LMI) and The Hartford companies, argued they have a statutory right to object to claims even if they have not agreed
to waive all coverage defenses and to pay any and all claims that may be allowed.
U.S. Bankruptcy Judge Robert E. Littlefield, Jr. took up the questi
on of whether the insurers currently have standing and found that at this time they do not. The judge left open the possib
ility that they could have standing in the future “if and when they assume financial responsibility in this case.”
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The Albany diocese filed for Chapter 11 bankruptcy protecti
on in 2023 as it, like other dioceses in the state, faced hundreds of lawsuits by survivors of sexual abuse by priests.
In his ruling against the insurers, Littlefield noted that a “party in interest” is broadly defined by statute, but an entit
y that does not hold a financial stake in the case is generally excluded from the definition.
The arguments on the question of the insurers’ standing revolved around the Supreme Court’s recent decision, Truck Insurance Exchange v. Kaiser Gypsum Co
., and its holding regarding the standing of insurance companies in an insured’s bankruptcy proceeding. In Truck, the
uck with financial responsibility for claims are “not peripheral parti
es” and such an insurer with financial responsibility for bankruptcy claims is a “party in interest” that may object to a Chapter 11 plan of reorganization.
The Supreme Court’s analysis requires a showing of financial responsibility, Littlefield explained, quoting from the Truck ruling: “Where a proposed plan ‘allows a party
to put its hands into other people’s pockets, the ones with the pockets are entitled to be fully heard and to have their legitimate objections address.'”
Yet, Littlefield noted, there is currently a clear distinction between the Albany diocese case and Truck in that ther
e has been no proposed plan of rehabilitation filed in the Albany case. The Supreme Court’s analysis in Truck relied heavily on th
e fact that Truck Insurance Exchange “will have to pay the vast majority of the Trust’s liability” and “stand alone in carrying the financial burden.”