FRAUD DOESN'T PAY - IT COSTS

INSURANCE FRAUDSTER MUST PAY INSURER FULL RESTITUTION
Post 5049

Plaintiff Liberty Insurance Corporation (“Liberty”) issued a homeowners insurance policy to Defendant Jack Strunk that was active when his home was damaged by fire. Strunk made two insurance claims: one for fire damage and another for alleged theft of certain personal property after the fire. Strunk sued Liberty for the payment of the alleged damages. That case was removed to federal court and ultimately settled by Liberty paying $100,000 to Strunk.

In Liberty Insurance Corporation v. Jack A. Strunk, Civil Action No. 5:24-128-DCR, United States District Court, E.D. Kentucky (April 4, 2025) Liberty sued Strunk for return of the amounts paid in settlement after he pleaded guilty to defrauding Liberty.

THE CRIMINAL CONVICTION

Strunk was convicted of felony insurance fraud. This is not contested as Strunk admited to this in his Answer. Strunk pleaded guilty to, and was convicted of, a criminal fraudulent insurance act based on his conduct in falsely reporting the property as stolen when he filed an insurance claim with Liberty. Liberty sued to recover the $100,000 settlement because Strunk breached the homeowner policy when he fraudulently alleged certain items were stolen.

Strunk was represented by counsel at the onset of this case who later withdrew because of the defendant's indigency. No counsel entered an appearance. While Strunk participated in submitting a proposed discovery order, he has not been involved since.

MOTION FOR JUDGMENT ON THE PLEADINGS

Liberty filed a Partial Motion for Judgment on the Pleadings, contending that Strunk breached the insurance contract entitling them to the return of the $100,000 only to be offset by restitution Strunk paid pursuant to his plea. The matter was referred to United States Magistrate Judge Edward B. Atkins who directed Strunk to respond to the motion within a specified time only to see no response from Strunk.

Magistrate Judge Atkins then issued a Report and Recommendation (“R&R”) in which he recommended that the Judge grant the plaintiff's Partial Motion for Judgment on the Pleadings. The R&R also recommended that the US District Judge enter judgment in Liberty's favor for the full $100,000.

ANALYSIS

The District Court Judge concluded that Congress did not intend to require district court review of a magistrate's factual or legal conclusions, under a de novo or any other standard, when neither party objects to those findings.  While there were no objections filed, the District Judge decided to limit the relief to what the plaintiff requested: that the Court grant the Partial Motion for Judgment on the Pleadings holding that Strunk breached the Policy and caused damages to Liberty in an amount to be determined through subsequent proceedings.

ORDER

Accordingly, it was ORDERED that Plaintiff Liberty Insurance Corporation's Partial Motion for Judgment on the pleadings was GRANTED. The case remained referred to Magistrate Judge Atkins for limited discovery on the breach of contract damages to determine the amount, if any, Defendant Strunk has paid in criminal restitution to Plaintiff Liberty Insurance Corporation as an offset against the judgment.

ZALMA OPINION

After an insurance fraud perpetrator is convicted the insurer is entitled to receive as a condition of the judgment, restitution for what the crime cost the insurer. Since Liberty defended Strunk's lawsuit and paid him $100,000 without knowledge of the crime, it sued for full restitution. It is entitled to at least $100,000 plus interest less any restitution Strunk paid into the court in an attempt to comply with the restitution order. No insurer should let a convicted fraudster keep the funds he stole. Liberty did not and will have both the order of restitution and the judgment to get its money back by executing its judgment on any property Strunk still owns,  for example the house Liberty insured.

(c) 2025 Barry Zalma & ClaimSchool, Inc.

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