CNA explains: How do dioceses pay for bankruptcy and abuse settlements?

CNA Staff, Jun 13, 2025 / 06:00 am

For many years in the United States, Catholic dioceses have periodically announced major settlements involving victims of Catholic clergy abuse, with the payouts coming as part of bankruptcy proceedings related to abuse claims.

Since 2004, when the Archdiocese of Portland declared bankruptcy, dioceses and archdioceses have used Chapter 11 law to navigate the complex and often financially crushing process of resolving decades of sex abuse claims.

In recent years, many U.S. bishops have announced major nine-figure settlements for abuse victims. Most recently, the Archdiocese of New Orleans last month agreed to pay a massive $180 million to victims of clergy abuse there, bringing an end to years of bankruptcy proceedings in federal court.

Where does the money come from?

Marie Reilly, a professor of law at Penn State University and an expert in bankruptcy litigation,  including Catholic diocesan bankruptcy proceedings, told CNA that the popular perception is that dioceses and archdioceses simply have tremendous amounts of money lying around to contribute to settlements.

That’s far from the truth, she said — and the process is unique for each diocese.

“In general, the plans of reorganization in diocesan and religious order bankruptcy cases are structured so that [the diocese and] the committees that represent sex abuse claimants agree on an amount of money to be contributed to this settlement trust,” she said.

The parties “also agree on the process and criteria by which the claims are going to be paid by the settlement trust,” she said. “Then they agree on where and how the diocese will fund the settlement trust.”

In many cases, she said, a diocese will fund a trust by selling property it may have in its portfolio. In the New Orleans case, for instance, the archdiocese is moving to sell a set of low-income housing properties it owns.

“In other cases I’ve seen dioceses proposing to sell property that was once used maybe for a church, but the church has been closed and is just sitting there as a deferred maintenance nightmare,” she said. “They’ll sell the properties and use the proceeds to fund the settlement trust. In more than one case the diocese has sold buildings that they used as offices or retreat houses.”

Reilly noted that insurance is a “huge component” of many payouts.

Multiple U.S. dioceses and archdioceses, including Baltimore and New York, have recently sued their insurance providers, alleging that the companies are refusing to help pay abuse claims even though they are reportedly legally obliged to do so.

Reilly said that insurance companies largely changed how they cover such incidents in the 1990s. “Up until about the mid-’90s, a general liability policy used to include coverages for employee liability,” she said. “It would cover sex abuse claims against the diocese stemming from an employee’s abuse. After 1996, insurance policies issued under new revised standards just don’t provide that coverage anymore.”

Data indicate that the vast majority of credible abuse allegations in the U.S. occurred prior to the 1990s.

In some cases, Reilly said, dioceses will borrow money to help pay settlements, including from affiliate organizations and services such as cemeteries.

“It’s very challenging to hypothetically value a lot of property that is entitled in the name of the diocese,” she said. “What is a cemetery worth? It’s subject to so many public health restrictions. Most cemeteries are zoned in a way that they always have to be used as cemeteries.”

“Even Church property that is no longer actively being used for worship is sometimes subject to a restrictive trust,” she pointed out.

Parish funds

Among the more controversial sources for diocesan settlement payments are funds from individual parishes. Reilly said it’s “very common” for parishes to pay into settlement trusts.

When a diocese files for bankruptcy, she said, it will usually ask the court to halt any litigation against individual parishes, in part because a parish being sued for the actions of a diocesan priest could claim the diocese itself is liable and sue the diocese in turn.

“The diocese will say it wants any settlement to be the ultimate solution for both their liability, and for the parishes too,” she said. “In order to get that to happen, parishes typically have to contribute to a settlement.”

Parishes in the Diocese of Rockville Centre, New York, she noted, were recently required to contribute to a settlement trust after the diocese said last year it would pay $323 million to abuse survivors. 

The Diocese of Buffalo, meanwhile, said this week that its parishes would be required to pay up to 80% of their “unrestricted cash” to help fund a $150 million settlement there.

Bankruptcy plans, Reilly said, are advantageous not just for a diocese but for those seeking compensation from it, as the alternative is for a plaintiff to “prove their case on a trial of evidence against the diocese,” which requires considerably more effort with less chance of payment.

Committees of survivors usually agree that bankruptcy is the better option, she said, insofar as it ensures that everyone gets some form of compensation instead of just a few big payouts being limited to the quickest litigants.

“Outside of bankruptcy, we call it ‘the race of the diligent,’ where the speediest get the spoils,” she said.