Estop it Right There: Chapter 7 Bankruptcy and Property Claims

By Wesley Todd | July 23, 2013

An insured’s Chapter 7 bankruptcy is an interesting and often unexplored issue that can have a large impact on an insurer’s potential liability. If an insured has filed for bankruptcy under Chapter 7 of the Bankruptcy Code, he or she might not be the proper “owner” of the claim anymore.

When an insured files for Chapter 7 bankruptcy, he or she is required to disclose all pending claims to the bankruptcy court. A Chapter 7 Bankruptcy Trustee is appointed and becomes the “owner” of these claims. The Trustee has the authority under the Bankruptcy Code to pursue the insured’s claims in an effort to increase the potential payout to creditors.

When an insured fails to disclose a claim to the bankruptcy court, he or she might be precluded by the doctrine of judicial estoppel from trying to recover from that claim in another case. As an example, if an insured’s bankruptcy is confirmed before the insured discloses the pending claim, but after that claim arises, the insured maintained the position that no claim exists in the bankruptcy court. Applying the doctrine the judicial estoppel, the insured cannot argue in another case that the claim exists and that he or she is entitled to damages. See Blumberg v. USAA Casualty Ins. Co., 790 So. 2d 1066 (Fla. 2001).

Unlike the heavily litigated policy provisions discussed in this blog series, judicial estoppel on these grounds is a simple and relatively inexpensive defense to address. Using public records searches and written discovery, the parties can determine whether a bankruptcy trustee might need to be substituted for the insured. If the bankruptcy case is closed, and the claim existed during the pendency of the bankruptcy, insurers should consider moving for summary judgment on the grounds that an insured cannot recover for his or her property damage claim under judicial estoppel.

At its core, judicial estoppel is a legal theory that is derived from the idea of fairness, and courts are always receptive to enforcing fairness. Insureds, insurers and their attorneys should investigate this issue at the outset of a case. Otherwise, the parties may spend resources arguing over proceeds that do not ultimately belong to the insured.

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About Wesley Todd

Wesley Todd is the founder of CaseGlide, LLC. Through CaseGlide’s Litigation Control System, Wesley is giving insurers the power to control their litigation costs and outcomes. If you have any questions about Wesley or CaseGlide, please visit More from Wesley Todd

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