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Duluth Diocese gets bankruptcy extension

The Catholic Diocese of Duluth has been under Chapter 11 bankruptcy protection since December 2015. (News Tribune file photo)

The Diocese of Duluth has been granted an extension to deliver its plan to emerge from bankruptcy protection.

The diocese, which has been under Chapter 11 protection since December 2015, was scheduled to file a reorganization plan by Friday, but U.S. Bankruptcy Judge Robert Kressel this week granted a motion to extend that deadline as the diocese continues to seek coverage of sexual abuse claims from its insurers.

"Despite the ongoing litigation, the Diocese (remains) optimistic that the parties will reach a consensual plan through the mediation process," attorneys Ford Elsaesser and Phillip Kunkel wrote in the motion. "However, before the parties are able to negotiate a plan of reorganization several legal issues need to be resolved."

The diocese, which was hit with a $4.9 million verdict weeks before filing for bankruptcy, is facing a total of 125 abuse claims filed under the Minnesota Child Victims Act.

The diocese in June filed a lawsuit against five insurers — Liberty Mutual Group, Catholic Mutual Relief Society of America, Fireman's Fund Insurance Co., Church Mutual Insurance Co. and Continental Insurance Co. — claiming they breached their contracts by failing to "acknowledge their full coverage obligations" in the abuse cases.

Both the diocese and victims' attorneys have expressed a desire to reach a settlement and said the participation of the insurers is a critical component.

The diocese and the insurance companies agreed to stay the lawsuit while undergoing mediation sessions in July and November. However, the talks failed to result in a global settlement, and the diocese in December re-initiated the legal process against the insurance companies, filing a series of summary judgment motions.

Several of those matters are still pending before Kressel or are in the process of being appealed to a district court judge.

The diocese attorneys said it is crucial to first resolve the insurance coverage issues before a settlement can be reached with victims.

"The Diocese has no ulterior motive in seeking an extension of the exclusivity periods," Elsaesser and Kunkel wrote. "It continues to pay debts as they come due and is not seeking an extension to pressure creditors. The Diocese is working diligently to maximize the value of the estate and requires the extension sought by this motion to bring this Chapter 11 case to an orderly and efficient conclusion."

The creditors did not file any objection to the motion, which Kressel granted at a hearing Thursday in Minneapolis.

The judge gave the diocese until June 7 to file its reorganization plan. It will have until Aug. 7 to exclusively seek acceptance of the plan before creditors could bring alternative proposals.

It is the third time Kressel has granted a motion to extend the reorganization plan deadline. The judge must sign off on a plan for the diocese to repay its creditors before it can regain control of its finances.

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