Alaska Diocese files for Ch. 11
Bishop Donald Kettler turns to the bankruptcy courts to help settle its sexual abuse-related lawsuits.

By Matt Miller
Daily Deal
March 4, 2008

As expected, the Roman Catholic Diocese of Fairbanks, Alaska, has turned to the bankruptcy courts to help settle its sexual abuse-related lawsuits. The church filed for Chapter 11 on Saturday, March 1, in the U.S. Bankruptcy Court District of Alaska.

The diocese's bishop, Donald Kettler, said in February 2007 that he had decided to seek bankruptcy. Kettler made the announcement following a settlement by a religious order with sexual abuse victims. The settlement left the diocese particularly vulnerable because, while it is named as a co-defendant in abuse-related lawsuits, its main insurance carrier refuses to cede that there's any coverage at all.

In the bankruptcy filing, the diocese named as primary debtor counsel Susan Boswell, a Tucson, Ariz.-based partner at Quarles & Brady LLP. This will be the third time Boswell is lead debtor counsel for a bankrupt church. She led the Diocese of Tucson through bankruptcy four years back. She also represented the Archdiocese of San Diego when it was in Chapter 11 last year. The archdiocese dropped its bankruptcy several months later when it settled out of court with claimants.

The Fairbanks Diocese also named Michael Mills, an Anchorage-based partner at Dorsey & Whitney LLP, as local counsel.

The diocese has threatened bankruptcy off-and-on since 2005. More than 100 individuals have alleged the diocese must be held liable for sexual abuse perpetrated within its far-reaching boundaries.

Late last year, the prospect of a bankruptcy filing became more certain after the Society of Jesus, or the Jesuits, agreed to pay $50 million as settlement of 19 lawsuits involving more than 100 abuse victims.

The suits also named the diocese itself. But the diocese couldn't settle because of disputes with its principal insurer on who pays what. A lawsuit initiated by Continental Insurance Co. against the diocese on the issue of indemnification remains in the U.S. District Court for the District of Alaska. The insurance company maintains it has no record of coverage and shouldn't be held liable. The diocese challenges this assertion.

The abuse lawsuits themselves were filed in an Alaska Superior Court. The Chapter 11 filing stays these suits.

The Fairbanks Diocese is the sixth to file for Chapter 11 relief since the extent of abuse was uncovered five years ago and lawsuits began pouring in. In addition to the aborted effort in San Diego, dioceses in Tucson, Portland, Ore., and Spokane, Wash., had plans confirmed and are out of bankruptcy. The Diocese of Davenport, Iowa, and its creditors filed a joint $37 million reorganization plan last month. Confirmation is expected in June or July.