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Archdiocese to mortgage property to raise needed cash

By Walter V. Robinson and Stephen Kurkjian, Globe Staff, 9/10/2003

The Boston Archdiocese plans to raise most of the money it needs to pay for the $85 million settlement announced yesterday by mortgaging churches and other buildings in parishes slated to be closed in coming years, according to a church official.

With a settlement agreement in hand, the church will now conduct a survey of its properties in Eastern Massachusetts to determine which to mortgage. The church official, who asked not to be identified, said the most likely choices would be the churches and buildings in 15 to 20 parishes that the archdiocese had previously said would be consolidated to save on operating costs. At this point, none of the settlement money will come from insurance companies. The two insurers that have covered the Archdiocese for abuse claims are balking at paying any of the settlement, according to other church officials and lawyers involved in the agreement. Archbishop Sean P. O'Malley has not specified how he intends to raise the money to fund the settlement agreement, but in a private negotiating session on Sunday night he said that none would come from the insurance companies, Kemper and Travelers, according to lawyers who attended the session.

The Rev. Christopher J. Coyne, spokesman for the archdiocese, said yesterday that it was "still up in the air" how the church will finance the agreement but acknowledged that the insurance companies had not agreed to provide any funds. He said that O'Malley would work "very, very vigorously" to persuade the insurance companies to pay their fair share.

But for the present, according to the church official interviewed by the Globe, the archdiocese has only about $15 million to commit to the settlement fund, money raised from the recent sale of real estate holdings.

But now that the settlement agreement has been reached, O'Malley intends to begin hard bargaining with Kemper and Travelers to persuade them to honor their policies, church officials said. If those talks fail, the officials said, O'Malley is prepared to sue the insurers in federal court. O'Malley has some experience with such litigation, having successfully sued insurers to help pay for the settlement of abuse cases in Fall River, when he was the bishop there.

An analysis last year by the church of its insurance program concluded that Kemper had $25 million in insurance funds still available to cover claims between September 1977 and March 1983, and that Travelers had $65 million to pay for claims during the years it covered the archdiocese, April 1983 through March 1989.

The insurance companies have refused comment on their dispute with the church. But the Globe reported last December that the insurers had sought to limit their exposure, saying Boston church leaders broke their insurance contracts by failing to remove from service priests whom they suspected or knew were abusing children. State and federal courts have consistently held that an insurance company can deny coverage of a claim if it is able to show that the harm resulted from the reckless behavior of its policyholder.

Last week, a church official said O'Malley ultimately hoped to raise $40 million from the insurance companies to finance the settlement agreement.

But unable to count now on insurance proceeds to cover the agreement, O'Malley had to commit to a multimillion-dollar mortgage program to raise the needed funds. The archbishop's decision, however, still needs the approval of the archdiocese's finance council, which must vote on all decisions involving more than $1 million. The council, which is composed mostly of well-regarded Catholic businessmen but chaired by the archbishop, has its next regularly scheduled meeting next Wednesday.

In the past, the council has exercised some independence from the archbishop. The council rejected, as excessive, the first request by Cardinal Bernard F. Law to pay victims of former priest John J. Geoghan in May 2002. But it later approved a less costly settlement, and went along with a request by Law to allow him to put the archdiocese in Chapter 11 bankruptcy as a means to deal with its looming financial problems.

The bankruptcy option was never used. Instead, the church chose to borrow $38 million from the Knights of Columbus, a Catholic service organization with its national headquarters in New Haven, to cover its day-to-day expenses. In exchange, the archdiocese mortgaged the Brighton grounds on which its chancery and the residence of past archbishops is located to the Knights of Columbus.

All of the money borrowed last September has been used to pay outstanding debts or allow the archdiocese to operate, and none of it is available to contribute to the settlement, the official said.

Church officials declined comment on whether the archdiocese will again turn to the Knights or seek another lender. Paul R. Devin, supreme advocate of the Knights of Columbus, declined to say yesterday whether the archdiocese had approached him. "Whether they call us or don't, it's for the archdiocese to say," Devin said. "It is hard to gain any agreements when one side or another is answering questions from the press."

The financing costs of the huge new loans were also uncertain, though O'Malley made it clear to the lawyers on Sunday that $85 million in new debt was as much as the church could afford.

Although O'Malley announced last month that he was moving out of the archbishop's residence to the rectory of the Cathedral of the Holy Cross in the South End, church officials have said that there are no plans to sell the Brighton property to raise the settlement funds. Boston College has expressed strong interest in buying the property.

Once he gets the approval of the finance council for the mortgage program, O'Malley will meet with financial advisers before deciding which properties to put up for mortgaging, Coyne said yesterday. The archdiocese this month announced that it was putting up for sale a residence it maintained in Milton to house some of the priests who had been accused of child abuse. But Coyne, said at the time the proceeds of the sale would not be used to fund any future settlement agreement.

Other dioceses and archdioceses have resorted to mortgages and property sales to pay for abuse settlements. For example:

The Diocese of Dallas had to mortgage and sell property to pay $11 million that its insurance didn't cover to settle more than $30 million in claims against former priest Rudy Kos.

The Diocese of Santa Rosa in California had to sell some properties and mortgage others to help erase a $16 million debt that was related to sexual misconduct.

In May, the Providence diocese announced that it was selling the summer residence of its bishop to help finance the $14.25 million settlement reached in three-dozen sexual abuse lawsuits.