New Jersey Diocese bankruptcy stumbles over insurance, quick-pay option

Reuters [London, England]

August 30, 2023

By Dietrich Knauth

  • Diocese said it hopes to quickly revise bankruptcy settlement
  • Judge said a revised plan must include more safeguards against invalid and inflated claims

The Catholic Diocese of Camden New Jersey said Wednesday that it was reworking an $87.5 million settlement with 300 sexual abuse victims after a U.S. bankruptcy judge said that the proposal could put insurers on the hook for inflated or invalid claims.

U.S. Bankruptcy Judge Jerrold Poslusny issued a decision late Tuesday which said that the proposed bankruptcy plan would create a settlement trust that was “biased” against insurers and could allow for payment of inflated, invalid or fraudulent claims, in addition to excessive attorneys’ fees.

The diocese, which serves 480,000 Catholics in six New Jersey counties, said Wednesday that it intended to submit a revised bankruptcy plan incorporating the judge’s feedback as quickly as possible.

“The Diocese remains hopeful that it will expeditiously exit the Chapter 11 process based on the roadmap provided through Judge Poslusny’s opinion,” Bishop Dennis Sullivan said in a statement.

Tancred Schiavoni, an attorney for insurers in the case, said that the rejected plan gave plaintiffs’ attorneys too much control over the future settlement trust, a feature that has been a point of contention in other bankruptcy cases involving large numbers of abuse claims.

“The Court’s decision provides guidance to other bankruptcy courts struggling with the same concerns about fraudulent claims and bloated contingency fees,” Schiavoni said.

Poslusny said that some plaintiffs’ attorneys had submitted claims for payment that were “invalid on their face,” and that the proposed bankruptcy plan had too few safeguards against fraud and overpayment.

“The court cannot approve a plan which allows attorneys to file invalid and fraudulent claims without consequence,” Poslusny wrote.

Poslusny focused his criticism on a provision that allowed claimants to opt for an expedited $2,500 payment rather than going through a thorough evaluation to determine their value.

That option could result in lawyers scooping up many clients at once, performing almost no work other than checking boxes on a nine-page form, and taking 40% of each clients’ quick-pay recovery, depending on the terms of the lawyers’ engagement agreements, Poslusny wrote.

If the quick-pay option is included in a future plan, it must be revised to prevent attorneys from “taking advantage of survivors” or charging fees that are excessive under New Jersey guidelines, Poslusny wrote.

The Boy Scouts of America’s $2.46 billion bankruptcy settlement suffered a similar setback last year after a U.S. judge rejected parts of the deal, but the settlement was revised and approved the following month. The revised Boy Scouts deal somewhat reduced overall payout to abuse survivors by removing a $250 million settlement that would have addressed claims against the Church of Jesus Christ of Latter-day Saints.

The case is The Diocese of Camden, U.S. Bankruptcy Court for the District of New Jersey, No. 20-21257

For the Diocese: Richard Trenk and Robert Roglieri of Trenk Isabel Siddiqi & Shahdanian

For the tort claimants’ committee: Michael Kaplan and Jeffrey Prol of Lowenstein Sandler

Read more:

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