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	Archdiocese to Begin Abuse Trial Insurance News Net July 16, 2007 http://insurancenewsnet.com/article.asp?n=1&neID=200707142650.1_716b00316395055e In Los Angeles, no one is mentioning the "b" word in any sentence involving the city's archdiocese — at least not yet. Bankruptcy remains an improbable, but certainly not impossible, option for the Roman Catholic Archdiocese of Los Angeles, now in the grips of sexual abuse-related litigation. After years of legal wrangling, the archdiocese is scheduled to go on trial for the first time for its role in the decades of sexual abuse of children by dozens of priests. The usual brinkmanship prevails. Lawyers are preparing for trial, even as settlement talks continue. Of course, the archdiocese could file for Chapter 11 protection to short-circuit abuse-related lawsuits, as five other dioceses have done before it, usually on the eve of a trial. From a financial standpoint, a bankruptcy filing may be a hard sell since Los Angeles represents America's richest Roman Catholic community, as well as its most populous. Internal resources and insurance coverage should be enough to underwrite an out-of-court settlement, without the need for bankruptcy court supervision. But given the sheer size of the claims against the archdiocese, their complexity and the possibility of extraordinarily high putative damages if trials go to the jury, a Chapter 11 filing can't be ruled out, according to lawyers watching the case. "It's not being openly discussed, but it's out there," said one lawyer not directly involved in the case. Jury selection is slated to begin Tuesday, July 17, in a lawsuit against the archdiocese brought by victims of a particularly sexually abusive Los Angeles-area priest, who died 20 years ago. A dozen more cases are scheduled to begin trial early next year, alleging the archdiocese failed to properly supervise other abusive priests and may have actively covered up their crimes. The potential liability is huge. The archdiocese faces almost 600 abuse claims. Based on the archdiocese's own out-of-court settlement last December of $60 million for 45 victims, that works out to more than $700 million. In Los Angeles, speculation suggests any universal settlement would require the archdiocese to fork over at least $500 million. Whether it's $500 million or $700 million, such a payout dwarfs previous settlements, both inside and out of bankruptcy. The Orange County, Calif., diocese, for example, settled in early 2005 with 90 claimants for $100 million. In April, the archdiocese of Portland, Ore., emerged from more than two years in bankruptcy after agreeing to pay up to $74.5 million to about 170 claimants. Settlement talks continue, archdiocese lawyers have told the Los Angeles press. But there are daunting barriers to a universal agreement beyond the numbers themselves. How much the archdiocese's insurance carriers would pony up is one big unknown. In past cases, carriers have paid about half the settlement costs, but the Los Angeles situation may be different. For one thing, the sheer size of the settlement may have the carriers fighting for a smaller stake. Then there's the issue of Cardinal Roger Mahony, who is named personally in the lawsuits. In May, Los Angeles County Superior Court Judge Haley Fromholz ruled that abuse victims could seek punitive damages against Mahony and the archdiocese. The ruling stemmed from a videotape found in an abusive priest's possession, which Mahony allegedly lied about publicly. In public statements, Mahony downplayed the videotape's seriousness, but a letter, written six months before the statement, eventually surfaced from Mahony to then-Cardinal Joseph Ratzinger. In the letter, Mahony wrote that the video's graphic scenes proved the priest had engaged in criminal behavior with boys. Punitive damages are above regular damages and reflect punishment to the wrongdoer for either intentional misconduct or callous disregard for actions, and California law prohibits insurance against punitive damage. "Punitive damage is the nuclear weapon on the table," said Gregory Keating, a professor of law and philosophy and associate dean at the University of Southern California's Gould School of Law. "One punitive damage award can be very large. Five hundred is a real problem." At this point, the threat of punitive damage could work either way. The prospect of multimillion-dollar awards could harden the resolve of plaintiffs' lawyers, making a universal settlement more difficult. Conversely, Fromholz could have used the issue to nudge archdiocese lawyers toward a more realistic settlement. "It's like a strike deadline, which actually forces a settlement," Keating explained. The clock is ticking, but there is some wiggle room. Jury selection and preliminaries will likely take two weeks before the actual trial gets under way. The Los Angeles archdiocese ministers to more than 4.3 million Catholics in almost 300 parishes. An analysis by the Los Angeles Times suggested the church holds property worth $4 billion, although parish real estate doesn't represent an asset class that is easily liquidated. Its size alone dictates that the Los Angeles archdiocese and how it resolves the sexual abuse suits has impact far beyond its borders. But the monetary standard the archdiocese sets has practical implications, especially for the bankrupt diocese to the south in San Diego. Debtor's and plaintiffs' attorneys there are far apart in terms of average settlement. The San Diego diocese put forward a reorganization plan that offered from $10,000 to $800,000 to each victim, significantly less than out-of-court settlements in Los Angeles and Orange County and not even as much as what the Spokane diocese, which did file for bankruptcy, and its victims agreed to. Indeed, one plaintiff's lawyer in San Diego called the plan "an insult" to victims. So a generous settlement in Los Angeles would put immense pressure on the San Diego diocese to do the same.
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