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Insurer settles diocese's abuse-related coverage dispute for $9 million

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An insurer for the Diocese of Duluth, Minnesota, agreed to pay $8.95 million to settle a coverage dispute with the diocese stemming from litigation over sexual abuse claims against local clergy, according to court documents filed Thursday.

The Omaha, Nebraska-based Catholic Mutual Relief Society of America, one of five insurers that were sued by the diocese, agreed to pay the settlement, according to documents filed in the U.S. Bankruptcy Court for the District of Minnesota.

The diocese had filed for bankruptcy in December 2015, a month after a jury handed down an $8.1 million verdict against the diocese and the St. Paul, Minnesota-based Oblates of Mary Immaculate, finding that they had been negligent by failing to supervise Rev. J. Vincent FItzgerald, who abused a victim who was a teenager in 1978. Rev. Fitzgerald died in 2009.

The diocese filed suit against in July 2016 Catholic Mutual Relief, the Liberty Mutual Group, Fireman’s Fund Insurance Co., Church Mutual Insurance Co. and Continental Insurance Co., according to news accounts, alleging the companies breached their contracts with the diocese because they have “failed to acknowledge their full coverage obligations” to cover any judgments or other legal expenses stemming from the abuse claims. Litigation remains pending against the other companies, according to news accounts.

“Over the last several decades,” Thursday’s court filing said, “some clergy members in the Diocese have violated the sacred trust placed in them by children, their families and the Diocese by committing acts of sexual abuse. The Diocese filed its chapter 11 bankruptcy case in an effort to compensate, as fairly and equitable as possible, all survivors of such abuse.”

Unless there is an opposing motion filed, U.S. Bankruptcy Judge Robert Kressel in Minneapolis is expected to grant the motion at a Jan. 4 hearing.

“The Diocese has determined that it is in the best interest of its estate and its creditors to reach a negotiated resolution of the dispute with Catholic Mutual,” the court filing said.

The case was the first to be tried under the Minnesota Child Victims Act, according to news reports, a 2013 law that opened the way for sexual abuse lawsuits that would otherwise be barred by statutes of limitation.

The Diocese of Duluth said in a statement that "the settlement with Catholic Mutual filed with the bankruptcy court Nov. 8 is a major step forward for the diocese and for abuse victims. The diocese has always wanted to provide compensation to victims in the most just way possible and to emerge from bankruptcy as soon as we can. This settlement represents progress toward both goals."

The Catholic Mutual Relief Society of America did not respond to a request for comment.