WILMINGTON -- Having to remove "Christmas Break" from school calendars and being forced to admit two children to an arts school ahead of other kids on a waiting list were among the reasons Indian River school officials gave for rejecting a settlement in a school prayer lawsuit.

Indian River said a proposed settlement agreement between two families that filed the federal civil rights suit and the district's insurance company, Graphic Arts Mutual, disregarded the board's interests in favor of those of the insurance company, according to a counterclaim filed in U.S. District Court.

The district's claim, as well as the original complaint filed by the insurance company and the district's response to the lawsuit, had been kept from public review until U.S. District Judge Joseph J. Farnan Jr. lifted a court-imposed seal Monday.

In its lawsuit, Graphic Arts said it does not want to pay the district's legal bills because Indian River did not accept the proposed settlement that insurance company lawyers brokered with the Dobrich family.

That would have ended the school prayer claim filed by Mona and Marco Dobrich and a second family against the district.

Indian River, however, said the proposed settlement was devised without consulting the district's lawyers and it would have required the district to establish new policies including:

-- A policy on religion within school and classroom settings so restrictive that it would have prohibited the mention of "Christmas Break" on district calendars.

-- Guidelines on prayer at commencement exercises and baccalaureate ceremonies.

-- A multistep complaint procedure for violations of these policies.

Further, the settlement would have barred the board -- and future boards -- from changing the policies unless required to do so by federal or state law, or a court or oversight agency, the district claimed.

Indian River School Board President Charles M. Bireley offered no additional details Monday night, referring questions to the board's attorney.

"We've all been told not to comment, and I really didn't realize that this was happening," he said, referring to the unsealing of the court records.

Another prong of the settlement would have allowed two children of the second family automatic admission into the district's arts schools -- jumping in front of other children who had applied.

"This term of the proposed settlement agreement was unacceptable because it disregarded the standing procedure for admission to the district's arts schools, which had waiting lists and required auditions as spaces became available," Indian River's claim said.

The insurance company warned that if the district did not accept the settlement, it would be a violation of the insurance contract and grounds for terminating it.

The school board nonetheless rejected the proposed settlement at a February meeting. The original prayer lawsuit, filed in February 2005, alleged that the Indian River district improperly promoted Christianity at school functions, ignoring the beliefs of non-Christian students including the Dobrichs, who are Jewish.