Insurance firms balked, bishop says

PORTLAND – One reason the Portland Archdiocese filed for bankruptcy was that insurance companies refused to pay any more for settlements to alleged victims of priest abuse, Archbishop John Vlazny said Friday.

Vlazny said the archdiocese was forced to exhaust its own $12 million insurance fund, before becoming the first Roman Catholic diocese in the nation to file for bankruptcy.

“I was approaching a situation that pretty much made it financially impossible to operate,” Vlazny said of his July 6 decision to file for Chapter 11 bankruptcy.

He answered questions from several attorneys representing alleged victims of priest abuse during a hearing in federal court on the archdiocese’s bankruptcy filing. Also present were Assistant U.S. Trustee Pamela Griffith, of Portland, and district U.S. Trustee Ilene Lashinsky.

The archdiocese has already reached $53 million in settlements and faces more than 60 lawsuits from people who claim they were sexually abused by clergy members. Another 20 cases are pending.

Of the $53 million, insurance companies including Safeco, Interstate and Lloyds of London have paid an estimated $27 million.

The archdiocese has paid a total of $26 million, but church officials say that outside insurers should have covered $17 million of that amount.

“A great percentage of that money should have come from insurers,” the archbishop said. “We believe the insurers owe us.”

Litigation is pending against the insurers, which Vlazny said ceased paying most of the claims starting in February 2001.

Much of Friday’s meeting explored what remains the bankruptcy case’s most controversial issue – how much the archdiocese is worth.

Attorneys for alleged victims estimate the total assets of the archdiocese at roughly $500 million – $100 million in cash and investments and $400 million in property.

But documents filed last week by the archdiocese list its Western Oregon real estate assets as worth just over $10 million. Church officials did not set values on precious objects such as religious artifacts and paintings.

Paulette Furness, the archdiocese’s business affairs director, said the discrepancy is that between civil law – which asserts that schools, parishes and other holdings belong the archdiocese – and canon law, which says those assets belong to the parishes themselves.

Furness met earlier this year with the legal counsel for the National Conference of Catholic Bishops to discuss the option of declaring bankruptcy.

Vlazny said he discussed the archdiocese’s struggles with abuse lawsuits during his visit to Rome in June. But Vlazny refused to describe his communications with the Vatican, saying they were confidential.

David Slader, an attorney representing some of the victims, said the church has remained silent on several important issues, such as its handling of abuse allegations against 37 priests from 1950 to 2003.

“This claim of religious privacy is an invention of theirs,” Slader said of the archdiocese. “They’re trying to establish the law of the Catholic church as the law of the state of Oregon.”

Vlazny conceded that before his arrival in 1997, there may have been cases in which the archdiocese failed to publicly report some allegations of sex abuse by clergy.

“I think there were some instances in the past where they (abusers) were known,” Vlazny said. “There was no transparency on the fact.”

Before Friday’s hearing, about 25 members of a victims’ rights group stood in front of the federal courthouse, cupping lighted candles in a silent vigil.

“We’re really hoping that this can take the focus off of money and the bankruptcy. Let’s do some outreach and promote long-term healing,” said Bill Crane, who heads the Oregon chapter of the Survivors Network for those Abused by Priests.”

In other developments

A disbarred Virginia lawyer has been indicted on fraud charges after he falsely claimed to have been abused by a now-deceased Catholic priest who is at the center of the priest abuse scandal in Oregon, according to the indictment filed by the U.S. Attorney’s Office Friday.

The indictment charges that Thomas E. Smolka, 57, attempted to defraud the Portland Archdiocese by claiming that he had been abused as a child by the late Rev. Maurice Grammond in Oregon.

Grammond stands accused of abusing more than 50 children in several different Oregon parishes and is at the center of lawsuits filed against the Catholic institution here.

Smolka, a former Virginia Beach lawyer, fled his home state a year ago after pleading guilty in Richmond to federal charges for having defrauded 17 clients out of at least $110,000 by taking their retainer but failing to deliver legal services.

U.S. Marshals arrested him on a federal fugitive warrant at his apartment in Portland’s Pearl District on March 24. Assistant U.S. Attorney Stephen Peifer said that during a search of his apartment, documents were found showing Smolka had tried to pass himself off as a victim of sex abuse in hopes of cashing in on a lawsuit.