Will sex abuse claims lead more Minn. dioceses to bankruptcy?

Minnesota Catholic Church leaders in St. Cloud, Crookston, New Ulm and Winona are weighing what to do as their dioceses face the financial fallout from hundreds of sex abuse claims between them.

Explore the full investigation Clergy abuse, cover-up and crisis in the Twin Cities Catholic church

The Archdiocese of St. Paul and Minneapolis and the Diocese of Duluth sought bankruptcy court protection after being overwhelmed by clergy sex abuse claims. Soon, some of the state's smaller dioceses will be forced to choose.

Experts are divided on the path they might take.

"It's unlikely that they're going to bankruptcy, based on national trends," said Charles Zech, director of the Center for Church Management at Villanova University.

"Every diocese in the country virtually has had some abuse cases. And only 13 have felt the need to go to bankruptcy," he said. "So, the odds are, it probably won't happen."

Still, Zech allows that the odds against more bankruptcies aren't overwhelming. And there have been signals that Minnesota dioceses could buck those national trends.

The Winona, New Ulm and St. Cloud dioceses have either hinted that bankruptcy is possible. University of Minnesota law professor Christopher Soper doesn't think they're bluffing.

"I think it's likely that there will be a few more church bankruptcies before any of these claims go to trial," he said. "If they have a lot of uncertain claims against them, that's one reason to file for bankruptcy protection. It doesn't mean that they're assuming an unfavorable outcome, just that there's an uncertain outcome with the potential to wipe out the organization financially."

The financial turmoil stems from a 2013 Minnesota law that temporarily lifted the usual deadline for when victims of sex abuse could file lawsuits. Previously, victims had until age 24 to sue. But the Minnesota Child Victims Act gave victims who had suffered abuse even many decades ago a chance to seek justice, if they filed claims by May 25, 2016.

St. Cloud has said diocesan and parish staff are working with attorneys to identify insurance coverage that could fund the resolution of lawsuits. The diocese says it's considering all options for fairly addressing claims made against it

A New Ulm spokesperson said all options are on the table as the church determines the fairest way to resolve sex abuse claims while enabling the church to continue its work.

Bankruptcy, of course, can be a long, contentious and expensive process. The Twin Cities archdiocese has been in bankruptcy court since January of 2015. And through the end of February, the litigation has cost the church about $7.5 million in legal and related fees.

Filing for bankruptcy is not a decision to be taken lightly, said Temple University professor Jonathan Lipson.

"If there's insurance that's readily available that would cover most or all of the liability, they would probably prefer to use that and not go into bankruptcy," he said.

But insurers can contest claims, contending they should not be responsible for abuse that church leaders knew or should have known about.

Lipson said one argument in favor of bankruptcy is that all abuse victims could share available assets. But if a diocese litigates a case before a bankruptcy filing and loses, that victim could get an award that leaves little money to compensate other victims, he added.

"Outside of bankruptcy, it's what's called the race of diligence. The first in time to win the judgment and collect from the debtor wins," he said. "If there's nothing left after that for everybody else, that's too bad for everybody else."

Without insurance, it seems there would be relatively little money to compensate abuse victims. The diocese of St. Cloud, for instance, has annual support and revenue of only about $5.2 million, and a like amount of expenses.

The Crookston diocese has about $2.8 million in annual revenue and net assets of just $1.6 million.

The Jeff Anderson law firm, which has brought the overwhelming majority of claims against the Catholic dioceses in Minnesota, is just starting to assess the finances and insurance coverage available to the four dioceses.

Said Mike Finnegan, an attorney with firm: "We are with the survivors trying to make sure that we can do everything to get the best outcome for the survivors and hopefully avoid bankruptcy, which can be very contentious and very expensive."