Battle Over Insurance in Milwaukee Archdiocese Bankruptcy Heats Up

(Journal Sentinel): The Archdiocese of Milwaukee filed a lawsuit Wednesday in U.S. Bankruptcy Court seeking to recover more than $2.6 million in legal fees from the firm now known as OneBeacon Insurance Co.

On the same day, OneBeacon asked U.S. Bankruptcy Judge Susan V. Kelley to lift the automatic stay imposed by the bankruptcy on all litigation involving the archdiocese so the Wisconsin Supreme Court can decide once and for all whether the insurer is liable for the church’s actions related to the sexual abuse of children.

Archdiocese spokesman Jerry Topczewski said it would oppose OneBeacon’s motion, saying “it distracts from the real issues needing resolution…to move the case forward,” including the payment of legal fees.

“OneBeacon has an obligation to pay for these costs under the insurance policies and…the archdiocese is committed to pursuing the monies it has coming to help pay the cost of the bankruptcy proceeding,” Topczewski said in an email.

OneBeacon’s Illinois attorneys did not return telephone calls or emails Thursday seeking comment.

The filings come as the archdiocese is completing work on a reorganization plan that will detail how it plans to compensate creditors, including victims, and finance its continued operations. The plan is expected to include millions of dollars in legal fees.

Insurance has been a significant factor in all of the reorganization plans submitted by Catholic dioceses and religious orders that have filed bankruptcy since 2004, contributing tens of millions of dollars to settlement funds for sex abuse victims.

Milwaukee is the first diocese to enter bankruptcy without the presumption of insurance coverage. Two state courts had ruled earlier that OneBeacon was not responsible for actions alleged in numerous lawsuits against the archdiocese — allowing known sexual abusers to have access to children — because those actions, if proved true, were intentional, rather than accidental.

The archdiocese appealed those decisions to the Wisconsin Supreme Court in December 2010. But the church filed for Chapter 11 bankruptcy protection two weeks later, triggering an automatic stay on all pending legal cases.

OneBeacon’s motion, if granted by Kelley, would restart that appeal process.

One group of insurers, including Lloyds of London, has essentially settled with the archdiocese, agreeing to buy back its policies for an unspecified dollar amount. And settlement talks are ongoing with at least one other.