Journal of American Law

SPRING 2015

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32 Journal of American Law // Spring 2015 replacement value, is appropriate. 30 But when a policyholder obtains a replacement cost appraisal for the item or asks an insurer to schedule the item for a high value and then reports to the bankruptcy court or the divorce court that the value is a small percentage of that amount, an issue arises as to whether the value stated was truthful. Tis likely will be a question of fact. If the value stated is reasonably close to the scheduled or appraised value, a court may be more reluctant to apply judi- cial estoppel to bar or limit an insurance claim than if there is a large gap between the two amounts. A party is not permitted to omit property from the sched- ule on the basis that she did not know the actual cash value. 31 In Payne v. Wyeth Pharmaceuticals Inc., 32 the debtor listed a personal injury claim against Wyeth Pharmaceuticals and valued it at $1 million. He claimed it as exempt. He then fled suit seeking $25 million in damages. Afer the suit was fled, the bankruptcy court discharged the debtor. Wyeth fled a motion for summary judgment seeking to apply the judicial estoppel doctrine to limit the claim to the $1 million stated in the bankruptcy schedules. Te court agreed and held that plaintif could seek only $1 million, not $25 million, because he knew of the claim and failed to amend his schedules before discharge. In Prince v. Allstate Ins. Co., 33 the court denied a motion for summary judgment holding there was an issue of fact as to whether the debtor misrepresented the value of his assets. Te debtor had stated in his Chapter 7 Schedule B that the current market value of his furniture, clothing, jewelry, and frearms was $1,300. Afer discharge, he bought insurance from All- state and sufered a fre loss. He claimed to Allstate the actu- al cash value of his personal property was $29,358. All of the property was acquired before the bankruptcy fling. Te court indicated that judicial estoppel would apply unless the debtor could show that his statement was not willfully false. In Sexton v. State Farm Fire & Cas. Co., 34 the plaintifs fled for bankruptcy and stated on their schedules that the current value of their assets was $2,600, which included $1,500 for fur- niture and electronics, $300 for clothing, and $800 for jewelry. An exemption was claimed for all of this property. Te court entered an order confrming the Chapter 13 plan. Payments under that plan commenced, but the case was dismissed when the required payments stopped. Afer fling the schedules, and afer the dismissal, a fre destroyed the plaintifs' house and they submitted an insurance claim to State Farm. In their claim, contrary to the limited assets listed on the bankruptcy schedules, the plaintifs submitted to State Farm a list of personal property valued at more than $140,000. Tey admitted they acquired virtually no additional property be- 30 See, Amstone v. Peninsular Fire Ins. Co., 226 Cal. App. 3d 1019, 1026 (1991) 31 Cricket Communications Inc. v. Trillium Industries Inc., et al., 235 S.W.3d 298, 306 (Tex. App. 2007). 32 606 F.Supp.2d 613 (E.D.Va. 2008). 33 2002 U.S. Dist. LEXIS 26889 (E.D.Tenn. 2002). 34 2011 U.S. Dist. LEXIS 67668 (E.D.Tenn. 2011). tween fling the schedules and the fre. State Farm denied the claim and a lawsuit followed. Te court found that judicial estoppel applied because the "plaintifs advanced a position in Schedule B, signed by plaintifs under penalty of perjury, and that the bankruptcy court adopted this position" when it confrmed the Chapter 13 plan. Te court held that the posi- tion taken in the litigation that their assets totaled $140,000 contradicted the position taken in the Schedule B. As a result, the court held that the plaintifs were judicially estopped from claiming recovery under their insurance policy for any items they failed to disclose in the bankruptcy proceeding. Other courts have considered a statement in the insur- ance claim that was inconsistent with the statement made to the bankruptcy court to be a material misrepresentation. For example, in Westfeld Ins. Co. v. Sandell, 35 the bankruptcy court considered a matter where the insured listed $40 of jewelry in her bankruptcy case. Te insured was granted a discharge. Nearly two years later, a thef occurred and an insurance claim was made for $39,268 in jewelry. Te insured told Westfeld that she did not list her jew- elry in the bankruptcy "because her lawyer told her that 'they would take her jewelry.'" 36 She later changed this story, ex- plaining that she had sold the jewelry to relatives and afer the bankruptcy those relatives gave it back to her as a gif. Te court found this story to lack credibility. Te court held that the insured willfully acted to conceal from Westfeld that the bankruptcy trustee, not she, owned the jewelry for which she was making claim. Terefore, the claim was properly denied based on the fraud and concealment provision. Te court said it was not a case of judicial estoppel as the representa- tions were not binding on the trustee who, according to the court, owned the stolen jewelry. Other cases also have avoid- ed using the judicial estoppel doctrine and instead found that the insured had breached the fraud and concealment clauses when representations were made in connection with claims that were contrary to representations made to the bankruptcy court. One efect of judicial estoppel is to bind the person to the representations made. Tus, when an overall, nonitemized value for jewelry or other property is listed in the bankruptcy schedules, it is appropriate to limit any claim payment to the amount stated in those schedules, even if the amount claimed is much higher. It is not just the property's existence that judi- cial estoppel impacts, but also its value. efect on Bankruptcy trustee When a debtor fails to disclose an asset in his schedules and an insurance claim for that asset is made later, there is a question as to whether the bankruptcy trustee has a right to recover on that claim. Generally, the answer is "yes," but the debtor may have no right to beneft personally. When a bankruptcy petition is fled, an estate is created. All of the debtor's property, including any prepetition claims 35 2005 Bankr. LEXIS 1189 (M.D.Fla. 2005) 36 Id.

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