Is it Insurance Fraud or Bankruptcy Fraud? – Ignored

Sworn Statement in Bankruptcy Filing Contradicts Sworn Insurance Claim

Implied in every contract of insurance is a covenant of good faith and fair dealing that neither party would do anything to deprive the other of the benefits of the insurance contract. When applying for insurance on scheduled jewelry the insured is required to show the value of the property by appraisal and if lost swear under oath about the value of the property at the time of the loss.

In Kenneth Krolczyk and Virginia Krolczyk v. Citizens Insurance Company of the Midwest, No. 341016, State of Michigan Court of Appeals (April 4, 2019) Mr. and Mrs. Krolcyzk insured jewelry that they owned at the time, years before, and stated under oath that it was only valued at $1,000.00. After the bankruptcy was closed they insured the same jewelry for more than $40,000 and made a sworn claim for $40,000 after the jewelry was lost. One of the sworn statements, therefore, must be false.

Citizens Insurance Company of the Midwest appealed the trial court’s orders denying defendant’s motion for summary disposition, granting plaintiffs’ motion for summary disposition, and entering judgment in plaintiffs’ favor.


Between 1995 and 2002, plaintiffs purchased four pieces of jewelry, which were collectively appraised at $44,600. In July of 2015, plaintiffs purchased a homeowner’s insurance policy from defendant. For an additional $825 premium, defendant individually scheduled each piece of jewelry at the appraised values.

In March of 2016, plaintiffs took a family trip. Shortly after returning home, plaintiffs discovered the four pieces of jewelry missing. Plaintiffs filed a claim with defendant for the “loss or theft” of the jewelry. The claim included the four pieces of jewelry at a claimed value of $44,600.

Defendant investigated the claim, and during the course of that investigation, defendant learned that plaintiff had filed for bankruptcy in June 2009. Even though the jewelry had been appraised before the bankruptcy, perhaps as recently as a year previously, plaintiffs’ bankruptcy schedules listed the jewelry at a combined value of only $1,000.

Plaintiffs both submitted to examinations under oath conducted by defendant. Plaintiffs admitted that they had no precise explanation for telling the bankruptcy court under oath that their jewelry was worth only $1,000 when they had appraisals for higher values.  Virginia Krolczyk also testified the false representation was based on legal advice. If they intentionally misrepresented the value of the jewelry they could have been charged with the crime of bankruptcy fraud. They were not and the Bankruptcy trustee and court were not interested in dealing with the lies.

There is no dispute that the theft or loss of the jewelry constituted a loss under the policy defendant issued plaintiffs. Rather, defendant relies solely on the bankruptcy discrepancy as its basis for refusing to pay the claim.

Plaintiffs sued defendant on August 15, 2016, asserting breach of contract and seeking declaratory relief.  Defendant’s motion asserted that the doctrine of judicial estoppel prevented plaintiffs from claiming that the jewelry was worth $40,600 after having taken the position in the bankruptcy court that it was only worth $1,000. Plaintiffs responded that the discrepancy was explainable as a mistake or inadvertence instead of an intentional attempt to mislead the judicial system.

In their motion for summary disposition, plaintiffs argued that they were entitled to judgment as a matter of law because the policy specifically scheduled and covered the jewelry at issue and there was no dispute that the loss occurred. Defendant argued that, notwithstanding the undisputed coverage and undisputed loss, plaintiffs had no insurable interest in the jewelry because of the bankruptcy. The trial court concluded that plaintiffs’ conduct in the bankruptcy could be explained by mistake or inadvertence. The trial court therefore denied defendant’s motion and granted plaintiff’s motion as to defendant’s liability.


The equitable doctrine of judicial estoppel generally prevents a party from prevailing in one phase of a case on an argument and then relying on a contradictory argument to prevail in another phase. The prior position must also be “wholly inconsistent” with the one taken in the present proceeding.

Significantly, the doctrine is applied against litigants because of their “deliberate manipulation” of the courts. In particular, judicial estoppel is an extraordinary remedy to prevent a miscarriage of justice, and it is not intended to defeat meritorious claims on a technicality.

Here, plaintiffs’ assertion in bankruptcy that their jewelry was worth $1,000 is directly contrary to the current claim that it is worth over $40,000. Significantly, the record is clear that defendant made many attempts to notify the bankruptcy trustee of the potential $40,000 in understated assets, and the bankruptcy trustee was uninterested in pursuing the issue. Additionally, the lack of any conceivable harm whatsoever to Citizens, which charged plaintiffs for insuring the jewelry as appraised and in no way relied on anything that happened in the bankruptcy proceeding, does not in any way suggest that any miscarriage of justice has occurred in this matter.

Plaintiffs clearly knew, or should have known, that they had misrepresented the value of their jewelry. The court of appeal stated it was sympathetic to the fact that bankruptcy proceedings are distressing and embarrassing, but concluded that is no excuse for lying to a court.

The court of appeal agreed with the trial court’s concern that the insurer seemed to be attempting to utilize the doctrine of judicial estoppel as a technical defense to derail a meritorious claim, premised on a fortuitous, after-the-fact discovery of a years-old, long-closed bankruptcy that occurred years before defendant’s policy was even in force.

The record does not show that defendant was the slightest bit interested in plaintiffs’ bankruptcy history or its potential impact on the availability for coverage when it initially issued the policy and collected an additional premium to cover plaintiffs’ jewelry. Defendant only developed a sudden concern for the integrity of the bankruptcy proceeding when doing so appeared to be in its direct financial interest. Defendant was not in any way harmed by plaintiffs’ $1,000 valuation in the bankruptcy proceeding, and neither did that valuation affect either the insurance policy or defendant’s collection of a significant premium based on the $40,600 valuation. It appeared to the court of appeal that the insurer was not trying to avert a miscarriage of justice so much as to create one.

It concluded, therefore, that the trial court properly declined to apply judicial estoppel to bar plaintiffs’ claims. It also held is no merit to defendant’s contention that plaintiffs do not hold title to the jewelry because title has been retained by the bankruptcy trustee.

The trial court therefore properly denied defendant’s motion for summary disposition. There is no dispute that plaintiffs suffered a loss that is otherwise covered under the insurance policy defendant sold them, so the trial court properly granted plaintiffs motion for summary disposition and properly entered judgment in plaintiffs’ favor based on the parties’ damages stipulation.


This case proves that many courts simply dislike insurers. In addition, the insurer used the technical defense of equitable estoppel when it was faced with a case of obvious fraud. The insured swore under oath that the jewelry that was the subject of the claim was only worth $1,000 and, as a result, was allowed to keep it when the bankruptcy was discharged. They then insured the jewelry at more than $40,000 and swore under oath that the value was the value at the time of the bankruptcy and they innocently misrepresented facts to the Bankruptcy court. The policy was acquired, in my opinion, based upon a material misrepresentation of the value of the property. The insured’s either committed insurance fraud or bankruptcy fraud. The court accepted excuses for perjury in either the bankruptcy proceeding or the insurance claim and the insurer should take the case to the Supreme Court on the fraud defense.

© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at and

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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