Judge Tosses Homeowner's $1.1M Insurance Claim

Judge Tosses Homeowner's $1.1M Insurance Claim
Rick Merechka built this 6,000-SF home in Alma in the 2000s. It burned to the ground in April 2015, triggering a legal fight with his insurance carrier. (U.S. District Court)

A federal judge recently sided with an insurance company against a Crawford County man who said he had amassed nearly $600,000 worth of furnishings in less than five years between bankruptcy and a catastrophic house fire.

Rick Merechka claimed more than $1.1 million when his five-bedroom, 6,000-SF house burned to the ground in 2015. Vigilant Insurance Co. denied Rick Merechka’s claim, alleging he wasn’t truthful.

Vigilant wanted to claw back the money it had paid for his mortgage and living expenses. But U.S. District Judge P.K. Holmes III ruled that Vigilant was obligated to pay those expenses.

In its case for the denial, however, the insurance carrier pointed to Merechka’s 2010 bankruptcy filing, in which he valued the contents of his home at just $8,925, according to filings in U.S. District Court in Fort Smith. But when Merechka filed a claim after the fire, he listed the total replacement value of the contents at $607,640. (The policy limits were $634,000 for the structure and $475,000 for the contents.)

The math didn’t add up for the insurance company. Merechka was earning $700 a week in cash by working for his brother at Maverick Pallet of Van Buren, plus another $1,300 a month in Social Security, according to Vigilant.

“Given Mr. Merechka’s reported income, the bankruptcy filing in December 2010, and the discharge in March 2011, it defies logic that Mr. Merechka was able to accumulate more than $465,000 worth of contents right after filing bankruptcy without having reported employment or any source of income other than disability payments,” Vigilant said in court filings.

Vigilant said Merechka failed to produce documentation for the purchases.

The insurance company denied his claim in August 2016, saying that Merechka violated the “concealment or fraud” provision of the policy.

One of Merechka’s attorneys, Patrick Cowan at the Little Rock firm Kirkendall Dwyer, said Merechka couldn’t document his purchases because he often deals in cash, buying items from garage sales and Craigslist.

“He’s picked up a lot of things that have more value than what he paid for them,” Cowan said.

Merechka sued Vigilant for the $1.1 million plus other damages for denying his claim.

“We think that it’s pretty clear cut that, from the get-go in this case, the insurance company has not wanted to pay the claim,” Cowan said. “And so they’ve searched for ways to deny it, and deny it they did.”

Before the case made it to a jury, Judge Holmes ruled in favor of Vigilant, which is part of the Chubb Group of Insurance Cos.

“No reasonable juror would find in Merechka’s favor because no reasonable juror would be able to reconcile the difference in value between his bankruptcy case and the insurance claim,” Holmes wrote in his order filed Oct. 11.

Merechka has appealed Holmes’ ruling to the 8th U.S. Circuit Court of Appeals.

“I’m looking forward to taking this to a jury,” Merechka told Arkansas Business last week. “I’ve done nothing wrong.”

Cowan also said that Merechka had witnesses who saw the property in the house.

“I think this case could have further implications for other cases,” Cowan said. “What happens when you get in a car wreck and there’s only you and the other person, and you say they did this?

“This case could potentially be interpreted to say that you have to have some sort of extra proof. … Your words are not good enough.”

Vigilant also appealed Holmes’ ruling, saying it is entitled to a repayment of Merechka’s mortgage, which it paid off, plus the amount for his living expenses while the case was being investigated — at least $380,000.

Holmes found no allegation that Merechka intentionally set the fire. “Because its obligation to pay off the mortgage did not result from Merechka’s misrepresentations, Vigilant has no claim for recovery against Merechka for damages,” Holmes wrote.

Vigilant’s attorney, Brian Henry of Sarasota, Florida, declined to comment, citing the pending appeal.

The House

The 66-year-old Merechka said that he built a house in the 2000s in Alma “because I wanted to,” according to an examination under oath, which was taken in October 2015 as part of Vigilant’s fire investigation.

Merechka said the house was completed in 2008 and featured a double staircase in the foyer and spacious bedrooms; one was nearly 600 SF.

Merechka was born in Fort Worth, Texas, and started working at Halliburton Services of Houston in 1981, staying until the early 1990s, when he fell off a derrick and landed on his head. “I spent two years learning to talk and learning to walk again,” Merechka said.

He received a settlement as a result of the accident and has been on disability since then. Merechka said he turned over the settlement money to his brother, Lynn Merechka, who gives him cash when he asks for it. “If I asked him today, he’ll get it today,” Rick Merechka said in the proceeding.

Filing for Bankruptcy

Merechka said he filed for bankruptcy in December 2010 “because my wife could not control her credit cards,” according to the 2015 proceeding.

He and his then-wife, Peggy Orr, listed $690,636 in debts and $388,800 in assets. The Alma home had a value of $352,000, according to the bankruptcy record. He also listed household goods, books, pictures, clothes and jewelry valued at $8,925. Merechka told Arkansas Business that his bankruptcy attorney told him to list his property as if he were buying it at a garage sale. “And we did,” he said.

He listed gross income of $19,800 for 2008 and the same for 2009, from Social Security and gambling. The couple received a standard discharge in March 2011, and Merechka and Orr subsequently divorced but still live together. Judge Holmes said in his order that the bankruptcy trustee didn’t appear to have liquidated any property to satisfy their debts.

After the bankruptcy, Merechka said, he bought items at deep discounts to furnish the house, including spending thousands of dollars on televisions.

Burned to the Ground

Merechka wasn’t home on April 19, 2015, when a lightning strike caused a fire that burned his home to the ground. Three months later, Merechka filed a $1.1 million claim with Vigilant, which was the policy coverage limit for the house and contents.

Vigilant launched an investigation into his claim, looking at how he afforded the assets in his home. “Thank God for garage sales,” Merechka said when quizzed about the value of the contents.

Vigilant asked for bank statements, tax returns and proof of income to verify Merechka’s claim. Vigilant said he didn’t produce any.

The insurance company determined that he “intentionally made false statements and concealed and misrepresented material facts and circumstances relating to this insurance in both your Sworn Statement in Proof of Loss and in the statements that you made to Vigilant’s investigator … in support of this claim,” the denial letter said.

Merechka filed a lawsuit in Crawford County Circuit Court in 2018 for breach of contract to recover the policy limits of the contents and the dwelling. The lawsuit was later transferred to federal court.

In the meantime, Cowan said, his client and his ex-wife have lost a “ton of assets,” and “obviously, they can’t … jump into a new home purchase.

“They’re currently in a rental house, kind of in limbo waiting for this whole thing to play out,” he said.