“You can’t have it both ways.”
Valuation of insured property in bankruptcy petition used against insured when that same property is later damaged
Property Value for Bankruptcy Petition
In 2011, John and Kathleen Brown filed a petition seeking protection under the bankruptcy laws. The price for seeking such protection is full disclosure of all assets and liabilities. The Browns listed their assets, including their household goods, and assigned values to them. Household goods must be given a value equal to the retail cost of replacing those goods with items of similar age and condition, in other words the depreciated value, not the cost of replacing them with new items. The Browns assigned a depreciated value of $3,100 to their personal property on their 2011 bankruptcy petition.
Property Value for Insurance Claim
Fast forward to 2012, when vandals broke into the Browns’ home and caused extensive damage to the interior structure and their personal property. Like most homeowners the Browns had insurance coverage, and they promptly submitted an insurance claim for the damage to their personal property. The insurance company’s adjuster initially valued the Browns’ personal property at $155,678.65 for purposes of their insurance claim. But then the insurance company discovered the Browns’ 2011 bankruptcy petition, and their assigned value of $3,100 for the very same property.
The insurance company pointed out the discrepancy, and ultimately the Browns were forced to file a lawsuit over the insurance claim. It did not end well for them. The trial court granted judgment in favor of the insurance company, limiting the Browns’ personal property insurance claim to the $3,100 they have assigned on their bankruptcy petition. And the Court of Appeals affirmed that decision, holding that the doctrine of judicial estoppel barred the Browns from claiming more in their breach of contract claim against their insurance company than they had listed on their bankruptcy petition: “we concur with the trial court that appellants are now judicially estopped from claiming, in the case sub judice, that the same property that they claimed was worth $3,100.00 in their bankruptcy is now worth $155,678.” Brown v. Nationwide Property & Cas. Ins. Co., 2014-Ohio-5057 at ¶23. Mr. & Mrs. Brown were out of luck. The opinion does not indicate if the insurance company refunded a portion of the premium that it had charged the Browns based on the higher estimated value of their personal property, but I suspect that the Browns did not receive a refund. So I guess the old adage “You can’t have it both ways” only applies to insured consumers, not wealthy insurance companies.
“You can’t have it both ways”
So what should the Browns have done to solve this problem, besides placing a more realistic value on their bankruptcy petition? Well, most homeowners’ insurance policies provide coverage for the replacement cost of damaged or destroyed personal property, provided the insured actually replaces the item. The insurance company values the claim by determining the cost of purchasing a new item and then deducting depreciation depending on the age of the damaged property. The depreciation is “held back” and then paid to the insured once the items is actually replaced. So in this case the Browns should have accepted the insurance company’s valuation, which was undoubtedly the full replacement cost, and argued that their prior estimate of the depreciated value on their bankruptcy petition was irrelevant and simply reflected their over-estimation of depreciation having nothing to do with the replacement cost. And since they intended to replace all of the damaged items the replacement cost is what actually matters, not the depreciated value. Just because the Browns may have claimed too much depreciation when valuing the property in bankruptcy does NOT change the cost of replacing the property with new items, it simply increases the depreciation hold-back that is paid to them after the items are actually replaced. If the Browns or their counsel had paid closer attention to the insurance policy terms and how they differed from the way property is valued in bankruptcy this problem could have been solved.
Brown v. Nationwide Property & Cas. Ins. Co., 2014-Ohio-5057.
Attorney Jim DeRoche represents business owners and individuals in insurance coverage disputes. To learn more, visit the Insurance Dispute section of this website.