After two failed settlement agreements, a federal bankruptcy judge has approved allowing insurance coverage litigation to resume in long-standing sexual abuse cases filed against insurers by the Diocese of Rochester, New York. 

U.S. Bankruptcy Judge Paul R. Warren agreed to dissolve a judicial stay of the litigation and terminate a mediation order in response to a motion by Interstate Fire & Casualty Co., a unit of Allianz Global Corporate & Specialty SE, according to Tuesday’s ruling by the U.S. Bankruptcy Court in Rochester in The Diocese of Rochester v. The Continental Insurance Co. et al.

“It was the court’s expectation that this Diocesan Chapter 11 case would proceed toward a consensual global settlement as had occurred in prior Diocesan bankruptcy cases over the past two decades where mediation was successful,” the ruling said.

“Here, despite the herculean efforts” of mediators, “mediation failed to achieve a global settlement.” Two settlement agreements, including a $147.8 million settlement announced in May 2022, were never ultimately approved by the court.

A joint plan, which did not include funding from Allianz or CNA Financial Corp., one of the other insurers involved in the litigation, has been proposed by the Diocese and a creditor’s committee, the ruling said.

It called for assigning the diocese’s claims against Interstate and CNA to a trust, which would then step into the shoe of the Diocese to pursue claims against those insurers, it said.

Plan confirmation “could be months (or years) in the future,” the ruling said. “Meanwhile, the question of whether Interstate, CNA and other carriers have valid defenses to the Diocese’s declaratory judgment action remains unanswered,” the ruling said. 

“Settlement efforts have ended. The harm to Interstate (and other non-settling insurers) by continuation of the Court’s stay of litigation in the Adversary Proceeding now substantially and manifestly outweighs any harm to the diocese or the abuse victims who, through their attorneys, have announced their intention to accept the considerable risks of litigation,” the ruling said.

Several attorneys involved in the litigation who were contacted did not respond to requests for comment.