Facing the equivalent of US$63,000 in monthly legal bills, the Cariboo (Anglican) Diocese in British Columbia was expected to close its doors on December 31. Its bishop, James Cruikshank, was to retire the same day and will not be replaced.

The diocese is Canada's most visible loss associated with thousands of suits charging sexual abuse. In the fall, the national government made an offer to shoulder 70 percent of out-of-court legal settlements for physical and sexual abuse claims at church-run residential schools for natives.

"All the government has talked about is money, which is the one thing the churches don't have," says Bud Smith, Cariboo's chancellor. "We have limited ways of raising it."

The government's offer came too late to help Cariboo. The small diocese, based in the town of Kamloops, has only 11 full-time clergy and 5,000 parishioners in 45 congregations.

More than 30 years ago at Cariboo's St. George Indian Residential School in Lytton, British Columbia, a staff member sexually assaulted four male students. In 1999, a judge approved a settlement of $126,000 to each of the four victims (all dollar figures in this article are U.S. equivalent). The judge ruled that the liability should be shared, with the government taking 40 percent and the church taking 60 percent. The diocese will remain a legal entity while the case is appealed.

Some experts estimate it may cost $1.26 billion to settle suits from more than 8,000 plaintiffs. Canadian church representatives say that a 30 percent liability, as suggested by the government, could cause more than $300 million in church payments.

Church leaders want the national government to cap liability for churches at a fixed amount.

Anglican Archdeacon Jim Boyles, chairman of the ...