Owner’s Statement About Value of Contents Sinks Claim For Destroyed Home

After his house burned down in 2015, Rick Merechka turned in a sworn proof of loss statement telling his insurance company that the replacement value of his household goods was $607,640.

But in December 2010, Merechka and his wife at the time had told a bankruptcy court that the total value of everything they owned was $8,925.

Merechka’s only reported source of income was a $1,300-per-month disability benefit. How had he amassed nearly $600,000 in property in four and half years?

A panel of the 8th Circuit Court of Appeals decided Wednesday that those numbers don’t add up. The appellate panel affirmed a ruling by a District Court judge in Arkansas that Vigilant Insurance Co. owes nothing on Merechka’s claim seeking the $475,500 policy limit for the contents of his home.

The 8th Circuit went even further. The panel also remanded the case and directed District Court Judge P.K. Holmes III in Fort Smith to fully vet Vigilant’s argument that it should also recover its damages, including the $380,001 it paid to Merechka’s mortgage lender before its claims investigation was completed. Holmes had dismissed Vigilant’s counterclaim without holding a hearing on the issue.

The panel’s opinion says the three circuit judges could not accept Merechka’s statement that he had not lied to his insurer about the extent of his loss. The panel said “no reasonable juror could believe that Merechka acquired so much property in such a short time on his modest income.”

Both sides appealed after Holmes ruled in 2019 that Merechka would take nothing from his claim for destruction of his home, which he says is worth $634,000 on top of the value of its contents. Vigilant asked the 8th Circuit to overturn the portion of the district court’s ruling that found it could not recover the money it paid to Merechka’s mortgage lender.

During oral arguments, Vigilant’s attorney, Brian Patrick Henry, said the insurance policy clearly states that coverage is void if any person insured by the policy makes material misrepresentations. He said the list of 1,200 items of property that Merechka turned in with his proof of loss statement was clearly bogus.

“Just to give some context: 126 pairs of shoes. Twelve firearms, which he was not legally allowed possess. Twenty pairs of dress pants, 30 pairs of dress shorts, 20 pairs of work pants. And the list goes on and on. A bear-skin rug. In a 52-month period that he purchased all magically with cash that never shows up anywhere in any document and no one other than Mr. Merechka testifies that he received.”

Henry told the circuit court that Vigilant hired Inservio to inventory Merechka’s losses after the fire and was unable to verify that any of the items listed on the proof-of-loss statement actually existed.

“There was nothing that could be validated in the rubble,” he said.

Merechka’s attorneys told the court that their client also earned $700 a week working for his brother, who owns a pallet company. Merechka also said that his brother administers an investment account that was set up for him when he settled a personal injury action for a head injury. His brother testified that he doesn’t remember making any payments, and he was unaware of any investment account.

Attorney Benjamin Patrick Cowan admitted during oral arguments that Merechka never reported any of the income to the Internal Revenue Service.

“In fact, for the majority if not the entirety of this time frame, he did not file file tax returns,” Cowan said. “That is an issue potentially for a tax court. The fact whether or he did or did not report income is not required for this case.”

And why were there no receipts? Cowan said Merechka and is ex-wife didn’t use credit cards.

“They are cash people,” he said. “They have maintained throughout the entirety of this investigation, that all of their money was in cash.”

Judge Holmes didn’t believe it, and neither did the panel of Circuit Court judges. The panel said in its opinion that it could accept that Merechka may have guessed that the replacement value of his property was less than he thought it was. Inservio had estimated the value of all of the listed items at $325,000.

But the panel said even with that more conservative estimate of value, Merechka would have had to spend more than $6,000 a month to accumulate all of the property that he said he owned. The panel said Merechka could not afford to spend that much even if he earned all of the money he says he did.

“The problem for him is obvious: He made only $4,300 per month and had a $1,750-a-month mortgage payment and other bills,” the opinion says. “Even if he spent every remaining penny assembling a collection of personal property, it would not have been enough.”

The panel affirmed the portion of the district court ruling finding that Vigilant owes nothing for the contents of the home. But the panel also reversed the portion of the ruling that dismissed Vigilant’s counterclaim seeking to recoup the money it paid to the mortgage lender.

The panel said the district court made the ruling without hearing any argument on the point.

“As Vigilant now argues, it would have drawn the district court’s attention to cases allowing insurers to pursue their policyholders after paying off a mortgage lender,” the panel said, and then listed those cases.

“To be clear, we are not saying that this line of cases necessarily applies here,” the opinion says. “Just that a remand is necessary to allow the district court to consider whether it does.”