Have you ever tried to determine the value of everything you own? It is not an easy task, and as time goes on you accumulate more personal property items, the task gets even more difficult. Valuation is a critical part of an insurance claim, and a recent court ruling considered an insureds unrelated bankruptcy in an insurance claim for a fire loss and the coverage was voided because of the differences in values claimed in each case.1
When you submit a filing in a federal bankruptcy court, you are required to tell the truth about your assets and your debits under penalties of perjury. But when it comes to valuing your personal property, what is the valuation equation you use to give a value to your clothing and household goods?
The bankruptcy filing forms require those seeking bankruptcy to list the categories of items and give values. In this case, Dale and Kim Neidenbach explained that in the bankruptcy, they were told to give garage sale values for their personal property items as they submitted their Chapter 13 filing.
The argument has been made that the valuation for a bankruptcy is not the replacement cost and not even the fair market value of your items. Brands, condition, and age of the items are not listed on the bankruptcy form. If you sold off all your assets to try to avoid bankruptcy, the amount you could sell your items for really depends on what a Craigslist shopper or yard sale neighbor will pay. Even selling these items is not a guarantee, so often the valuation for your personal items listed in a bankruptcy is the same as what one might list at a garage sale. Many items are difficult to sell secondhand—socks and underwear have little, if any, value. Do those items even get a value? Are they worthless when it comes to an asset evaluation?
This differs greatly from if your insureds personal property and the personal items in your home are destroyed or damaged by fire. Homeowners insurance with personal property coverage will cover these items at either an actual cash value or a replacement cost value.
The bankruptcy personal property valuation was presented by the insurer in the fire loss claim and successfully argued in the insurance claim for a fire loss and the insurance company was successful in arguing that the insureds bankruptcy valuation mattered greatly.
When Dale and Kim Neidenbach filed for protection under Chapter 13 of the federal Bankruptcy Code, they declared—under penalty of perjury—that they jointly owned only $7,000 worth of household goods and furnishings, clothing, furs, jewelry, firearms, hobby equipment, and other personal property. Two years later when their home suffered fire damage and the insureds claimed $262,500.00 in damage to their personal property. They attached to the proof of loss with an inventory of the personal property, the total value of the personal property lost in the fire was over $300,000, exceeding the policy limit. Because of the $7,000 valuation in the bankruptcy filing and the insurance claim for $262,500, the insurance company moved for summary judgment arguing that the insurance policy was void under its “Concealment or Fraud” provision because the Neidenbachs had misrepresented the value of their personal property in their proof of loss. The argument by the insurer was that the insureds had made a misrepresentation and all coverage should be void.
Here is the policy provision:
R. Concealment or Fraud
We provide coverage to no insureds under this policy if, whether before or after a loss, an insured has:
1. Intentionally concealed or misrepresented any material fact or circumstance;
2. Engaged in fraudulent conduct; or
3. Made false statements;
The policyholders argued that the case should be decided by the jury that could differentiate the different values, but the court disagreed and found for the insurance company, voiding coverage for the insureds. The court said that the insureds personal property was an intentional material misrepresentation.
On appeal, the decision was affirmed. But what the courts were evaluating in these two inventories are really apples and oranges. These two sworn statements are very different and have different requirements for valuation, but this difference seems to have been lost on both courts.
The Eighth Circuit noted that Neidenbachs had produced no evidence they had computed the value of their personal property incorrectly on their bankruptcy petition, or that they had excluded personal property from the petition because they believed it had no resale value.
This is an unjust result for policyholders and will be cited by others as an escape clause to paying what would be an otherwise covered claim. Most people probably never expect a bankruptcy nor do they predict a personal property loss. If either of these forms need to be filled out by you, consult and get advice about the valuations.
1 Neidenbach v. Amica Mutual Ins. Co., No. 16-1400 (8th Cir. Nov. 16, 2016).