Liars Never Prosper – How Bankruptcy Fraud Destroyed Fire Claim

Read the full article at https://www.linkedin.com/pulse/thorough-investigation-defeats-fraud-barry-zalma-esq-cfe and at https://zalma.com/blog plus 4100 posts. 

Over the last 54 years in the insurance business I have faced people with insurance claims who had, shortly before their claim, sworn to a bankruptcy court that they only had $500 in jewelry and minimal amounts of personal property to avoid losing their assets to their creditors. One even testified that he lied on his bankruptcy proceedings because he didn’t want his creditors to get his airplane. (He, by the way, went to jail for bankruptcy fraud and recovered nothing on his insurance claim). It is hard to answer when a person is asked which under oath statement is true: the bankruptcy filing or the claim. I always insist that a thorough investigation requires a review of bankruptcy filings.

In Rick Merechka v. Vigilant Insurance Company, a foreign corporation; Rick Merechka v. Vigilant Insurance Company, a foreign corporation, Nos. 19-3427, 19-3497, United States Court of Appeals, Eighth Circuit (February 16, 2022) the Eighth Circuit was faced with just such a situation and assumed that the statement made in the bankruptcy filing was true.

FACTUAL BACKGROUND

After Rick Merechka’s home burned to the ground, he sought benefits under his homeowner’s policy. Following an investigation, his insurer, Vigilant Insurance Company, denied the claim because it concluded that he had lied about the amount of personal property he owned. 

During its investigation, Vigilant discovered that Merechka had filed for bankruptcy just four-and-a-half years earlier. According to his bankruptcy petition, he had around $9,000 in personal property-well short of the more than $600,000 (or $325,825, according to a third-party appraiser) that he reported to Vigilant.

No reasonable juror could believe that Merechka acquired so much property in such a short time on his modest income. The only “reasonable inference[],” in other words, is that Merechka lied. 

Once Merechka lied on his proof-of-loss forms, it voided the policy .

The court affirmed the verdict in favor of Vigilant and remanded to the trial court to determine whether Vigilant had a subrogation right to recover money from the insured.

ZALMA OPINION

Merechka could not admit to his insurer or the court that he had lied in his bankruptcy petition since, to do so, would open him up to a federal felony; rather he had to lie to his insurer that he acquired all of his personal property after his bankruptcy – a financial impossibility – and a state felony’s. He should be reported to the state’s insurance fraud entity and the U.S. Attorney.

© 2022 – Barry Zalma

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