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A federal district court in Michigan has declared that homeowners were not judicially estopped from asserting that the value of the personal property they lost in a fire was $317,292.28, when they had previously valued their personal property in their bankruptcy case at only $24,500.

The case is Pavelka v. Allstate Property and Casualty Insurance Company.1 In Pavelka, one of the plaintiffs suffered a permanent injury and could not work, causing the couple to file a bankruptcy petition. About two months after the conclusion of the bankruptcy proceedings, the Pavelkas’ home and personal property was destroyed by a fire. The Pavelkas submitted a Sworn Statement in Proof of Loss regarding their personal property. In the sworn statement, the Pavelkas asserted that the replacement cost of their personal property was $317,292.28 and that the actual cash value of the personal property amounted to $268,809.56 both of which exceeded the policy limits for personal property.

A lawsuit followed over coverage, and the building and additional living expense parts of the claim were settled. However, Allstate took the position that the homeowners were estopped from claiming more than the $24,500 they listed as the value of their personal property in their bankruptcy proceeding. Allstate alleged that the Pavelkas misrepresented the amount of the loss in the proof loss based upon the amounts stated in their bankruptcy petition.

Ultimately, the court rejected Allstate’s argument that the Pavelkas should have calculated their personal property claim as they had calculated the value of their personal property in their bankruptcy schedules. The court held that, in bankruptcy situations, parties use liquidation or “garage sale” prices and that for insurance purposes, items are valued at the cost to replace with new items. The court held there was a “legitimate explanation” regarding why the total values in the prior bankruptcy proceedings and the breach of contract proceedings differed and the Pavelkas were not bound by the values in the bankruptcy proceeding.