In March 2016, the Krolczyks took a family trip. Shortly after returning home, the Krolczyks said that they discovered that the four pieces of jewelry were missing.

The Krolczyks filed a $44,600 claim with Citizens for the “loss or theft” of the jewelry.

Citizens investigated and learned that the Krolczyks had filed for bankruptcy in June 2009 and that their schedules listed the jewelry at a combined value of $1,000. As part of their bankruptcy, the Krolczyks submitted to a creditors' examination, which they attended along with their bankruptcy lawyer, a lawyer for one of their creditors, and the bankruptcy trustee. Although several questions were asked about the amounts of various debts and the values of various assets, no one inquired further about the jewelry.

In July 2009, the trustee recommended, and the bankruptcy court granted, a discharge of the Krolczyks' debts.

In connection with their claim to Citizens, the Krolczyks admitted that they had no precise explanation for telling the bankruptcy court their jewelry was worth $1,000 when they had appraisals for higher values, although Ms. Krolczyk noted that they relied on advice from their bankruptcy lawyer. In addition, the Krolczyks indicated that the bankruptcy was personally and emotionally troubling to them, making it difficult for them to recall specific details about the way they had completed their forms years after the fact. Ms. Krolczyk also testified that their bankruptcy lawyer explained to them that their jewelry was subject to exemptions as wedding jewelry and because it was custom-made or had sentimental value.

Citizens denied the Krolczyks' claim, relying solely on the bankruptcy discrepancy as its basis for refusing to pay the Krolczyks' claim.

The Krolczyks sued Citizens and the parties moved for summary disposition.

Citizens asserted that the doctrine of judicial estoppel prevented the Krolczyks from claiming that the jewelry was worth $44,600 after having taken the position in the bankruptcy court that it only was worth $1,000.

For their part, the Krolczyks contended that the discrepancy was explainable as a mistake or inadvertence instead of an intentional attempt to mislead the judicial system.

The trial court granted judgment in favor of the Krolczyks, and Citizens appealed.

The Appellate Court's Decision

The appellate court affirmed.

In its decision, the appellate court conceded that the Krolczyks' assertion in bankruptcy that their jewelry was worth $1,000 was “directly contrary” to their insurance claim for over $44,000.

The appellate court added, however, that it was “unclear” whether the Krolczyks' $1,000 valuation had any practical consequences. It noted that no one had inquired about the jewelry at the creditors' exam of the Krolczyks during their bankruptcy case.

The appellate court also pointed out that although Citizens made many attempts to notify the bankruptcy trustee of the potential $40,000 in understated assets, the bankruptcy trustee was uninterested in pursuing the issue.

In the appellate court's opinion, “[t]he level of disinterest shown by the trustee and creditor, both during the bankruptcy proceedings and after, implie[d] that the jewelry was of minimal importance.” The appellate court added that “the lack of any conceivable harm whatsoever to Citizens, which charged [the Krolczyks] for insuring the jewelry as appraised and in no way relied on anything that happened in the bankruptcy proceeding,” did not suggest that any miscarriage of justice had occurred in this case.

The appellate court reasoned that it was not clear that the Krolczyks had any real motive for concealment, especially in light of testimony that their lawyer had advised them that the custom nature of the jewelry and the fact that it was wedding jewelry made the pieces exempt.

The appellate court added that this was not a situation where a bankruptcy was filed by a debtor who concealed a known and existing claim, hoping to be able to bring it after the bankruptcy ended by avoiding having it liquidated by the trustee. The appellate court noted that the Krolczyks “had no claim against [Citizens] for the jewelry at issue, and indeed did not even obtain the policy until years after the bankruptcy ended.”

The appellate court concluded that Citizens appeared to be attempting to use 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 [Citizens'] policy was even in force.”

In the appellate court's view, it appeared that Citizens was “not trying to avert a miscarriage of justice so much as to create one.”

The case is Krolczyk v. Citizens Ins. Co., No. 341016 (Mich. Ct. App. April 4, 2019).