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Church suit accuses an insurer of fraud

By Shelley Murphy, Globe Staff, 3/6/2004

The Roman Catholic Archdiocese of Boston filed a federal lawsuit yesterday accusing one of its insurance carriers of fraud and breach of contract for failing to cover settlement payments totalling millions of dollars to victims of clergy sexual abuse.

After the archdiocese agreed last September to pay up to $84,250,000 to 552 victims, Lumbermens Mutual Casualty Co. sent a letter to Archbishop Sean P. O'Malley stating for the first time its position that the settlement offer constituted a "voluntary payment" and that the insurance company was therefore under no obligation to contribute to the settlement, according to the suit.

By the archdiocese's calculation, $59.3 million of the settlement relates to policy periods when Lumbermens, the lead underwriting company of the Illinois-based Kemper Insurance Cos. group, was the church's sole insurer. An additional $7.7 million arises out of policy periods when Lumbermens' coverage overlapped with that of another insurer.

"Largely as a result of [Lumbermens'] denial of coverage, the RCAB [Roman Catholic Archbishop of Boston] was forced to borrow money to fund the settlement and to offer certain valuable property for sale," the suit says.

A spokeswoman for the company said she could not comment on pending litigation.

The suit charges that the insurance company "has refused to make a reasonable offer of settlement and still even refuses to acknowledge that there are no aggregate limits applicable to the claims at issue."

The suit asks a judge to find that Lumbermens had a duty to defend and indemnify the archdiocese for sexual abuse claims beginning no later than 1964 and continuing until March 31, 1983, with no limit on the total, or aggregate, that could be paid out each year.

The suit chronicles a dispute with Lumbermens over coverage that dates back to 1993, when the archdiocese notified the company that it had received several claims by individuals who alleged they had been molested by priests between 1954 and 1983.

The company denied coverage in those cases on a variety of grounds, and the archdiocese paid approximately $2 million of its own funds between 1993 and 1996 to settle the claims, according to the suit, filed by Boston atttorney Paul B. Galvani of Ropes & Gray.

Yet in June 1995, representatives from Lumbermens said that a further review had led them to discover that the archidiocese was entitled to coverage for some of the claims and reimbursed the church for some of the money it had paid to victims. But, Lumbermens insisted it could not locate old insurance policies it held with the archdiocese dating back to 1968 and believed there was a cap on the aggregate amount the company would pay to victims in any single year up until 1983, according to the suit.

The dispute over coverage continued as more victims came forward alleging they had been sexually abused by priests. By late 2002, the church was facing claims from more than 500 victims.

While the archdiocese was involved in intensive mediation efforts with the victims' lawyers, according to the suit, Lumbermens "continued to refuse to participate in the negotiations and continued to assert falsely that the primary policies had been exhausted, thus seeking to limit drastically the available coverage."

But in February 2003, according to the suit, representatives from Lumbermens came to Boston to discuss coverage issues and "at long last confessed" that there were no applicable aggregate limits on the amounts that could be paid to victims each year.

The suit alleges that a lawyer for Lumbermens suggested that the archdiocese should agree that there would be aggregate limits because it "would help limit the [archbishop's] payments to the victims as well as avoid opening a "can of worms."

The suit says Lumbermens' "ploy of attempting to insert aggregates where none existed would have limited fraudulently its coverage by tens of millions of dollars."

The church's lawyers sent a letter to the mediators and victims' lawyers alerting them that although the archdiocese had been led to believe that the policies from 1964 to 1977 had been exhausted, it no longer believed that to be true, according to the suit.

The archdiocese announced in December that it planned to sell 27.6 acres in Brighton, including the mansion that once housed Boston's cardinals, as well as to mortgage St. John's Seminary and the Cathedral of the Holy Cross to raise the money to pay victims of clergy sexual abuse.