Criminal Investigation of Insurance Fraud Without Indictment Not Grounds for Stay of Civil Action
Post 4828
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Defendant Kith Furniture, LLC’s moved to stay the proceedings brought by Liberty Mutual in Liberty Mutual Fire Insurance Company v. Kith Furniture, LLC, No. 6:23-cv-01130-LSC, United States District Court, N.D. Alabama, Jasper Division (July 1, 2024) and the District Court resolved the dispute.
BACKGROUND
Defendant Kith Furniture, LLC’s moved to stay the proceedings brought by Liberty Mutual in Liberty Mutual Fire Insurance Company v. Kith Furniture, LLC, No. 6:23-cv-01130-LSC, United States District Court, N.D. Alabama, Jasper Division (July 1, 2024) and the District Court resolved the dispute.
BACKGROUND
Kith’s furniture plant and inventory were allegedly damaged in a tornado. While investigating Kith’s insurance claim, Plaintiff Liberty Mutual Fire Insurance Company learned information that called Kith’s claim into question and warranted further investigation. Kith insisted that Liberty continue making payments under the policy “during the pendency of this investigation.”
Liberty sued seeking a declaration that it need not continue making payments until it concludes its investigation. Simultaneously the Alabama Department of Insurance, Fraud Bureau opened an investigation into Kith’s insurance claim.
Liberty amended its complaint to add a new claim alleging fraud and Liberty alleged that Kith employees “intentionally damaged” “almost $500,000 worth” of “furniture that [Kith] could no longer sell to make it look like it had been damaged in the tornado.” Kith asked the Court to stay all proceedings in this action pending the Alabama Department of Insurance’s criminal investigation.
DISCUSSION
Kith contended that it will be substantially prejudiced by having to defend itself in this action while simultaneously facing a parallel criminal investigation. Liberty countered that, if this Court stays this action, Liberty will be substantially prejudiced by the very real risk that evidence would be lost and memories would fade.
This Case Significantly Overlaps The Related Criminal Investigation.
The Alabama Department of Insurance opened its criminal investigation on the very insurance claim at issue here. Kith asserted that the investigation and this case “involve the same legal theories and alleged conduct by Kith,” and are “practically identical.” Liberty dismissed Kith’s assertions as “entirely speculative,” emails exchanged between Liberty and a criminal investigator tend to corroborate Kith’s assertions.
Kith Has No Fifth Amendment Rights.
The Fifth Amendment privilege against self-incrimination does not extend to non-natural entities. Courts routinely hold parallel criminal proceedings and do not entitle corporate defendants to a stay of civil proceedings.
There Are No Pending Criminal Proceedings.
Among Liberty’s attempts to distinguish this case from those cited by Kith, one fact stands out: here, there are no pending or imminent criminal proceedings. The record does not indicate that anyone has been indicted, charged, or arrested for any crime related to this insurance dispute. The lack of pending or imminent criminal proceedings makes any potential avoidance of prejudice to Kith or any potential conservation of judicial resources by granting a stay entirely speculative.
Liberty Faces Potential Prejudice From Delayed Proceedings.
Liberty argued that staying this case would be putting Liberty’s civil action on the shelf to grow cold without the benefit of a criminal prosecution against Kith.
Although Alabama’s ongoing investigation somewhat mitigates the risk that evidence will be lost and memories will fade, the current absence of any arrests or criminal charges failed to assure the Court that Alabama’s investigation will be sufficiently “brief” and “exhaustive” to shield Liberty from all prejudice. This factor weighs heavily in Liberty’s favor. Therefore, Defendant Kith Furniture, LLC’s motion to stay proceedings was denied.
ZALMA OPINION
Liberty found evidence of fraud and needed to move forward with its action before evidence became lost or forgotten. A criminal investigation without an arrest or indictment is nothing more than that: an investigation. There was no reason for a stay of the civil action. My experience makes clear that state investigations into insurance fraud seldom result in arrest or trial while a civil action asserting fraud can be brought to trial quickly without the need a criminal investigation has to prove the fraud beyond a reasonable doubt.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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Happy Law Day
ZIFL – Volume 30, Issue 9 – May 1, 2026
Read the full article at https://www.linkedin.com/pulse/zalmas-insurance-fraud-letter-may-1-2026-barry-zalma-esq-cfe-2tywc, see the video at at and at https://zalma.com/blog plus more than 5300 posts.
THE SOURCE FOR THE INSURANCE FRAUD PROFESSIONAL
ZIFL – Volume 30, Issue 9 – May 1, 2026
Zalma’s Insurance Fraud Letter (ZIFL) continues its 30th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year and is written by Barry Zalma.
DOJ Creates National Fraud Enforcement Division
Will the Feds Take on Insurance Fraud? Possibly as Part of a National Anti-Fraud Effort
On April 7, 2026, the Acting Attorney General, Todd Blanche, issued a memorandum establishing the Department of Justice National Fraud Enforcement Division (NFED). The memo describes an ambitious, but perhaps redundant, vision for this ...
When Abalone Died As a Result of Multiple Causes The Efficient Proximate Cause Requires Payment
Post number 5345
Read the full article at https://www.linkedin.com/pulse/efficient-proximate-cause-doctrine-saves-claim-barry-zalma-esq-cfe-yndlc, see the video at and at and at https://zalma.com/blog plus more than 5300 posts.
In American Abalone Farms, LLC v. Star Insurance Company et al., H052643, California Court of Appeals, Sixth District (April 27, 2026) the Court of Appeals dealt with an insurance coverage issue that required application of the efficient proximate cause doctrine.
FACTS
American Abalone Farms, LLC ("American Abalone" ) operates an aquaculture farm in Santa Cruz County, California, raising abalone in tanks. In August 2020, the CZU Lightning Complex Fires led to a prolonged power outage and road closures near the farm. As a result, the farm’s water pumps failed, causing the death of most of the ...
Breach of a Specific Condition Precedent Is a Complete Defense
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In United Services Automobile Association and State Farm Mutual Automobile Insurance Company v. Anthony Wenzell, 2026 CO 25 (Colo. Apr. 27, 2026) Anthony Wenzell was rear-ended in a car accident. He had a significant prior 2014 accident that required back surgery.
Wenzell claimed underinsured-motorist (UIM) benefits under three policies: (1) the tortfeasor’s liability policy, (2) his own primary UIM policy with State Farm, and (3) an excess UIM policy issued by USAA (under his brother’s policy, which contained an “other insurance” clause making USAA’s coverage excess over any collectible insurance).
After receiving the claims, both USAA and State Farm repeatedly requested that Wenzell execute comprehensive medical-release authorizations so they could obtain his full medical records and ...
It is Fraud to Make the Same Claim Twice
Read the full article at https://www.linkedin.com/pulse/fraud-make-same-claim-twice-barry-zalma-esq-cfe-c4g8c and at https://zalma.com/blog.
Chutzpah: After Being Paid for a New Roof Insured Makes Second Claim For Same Damages
Post number 5347
No One is Entitled to be Paid for the Same Loss Twice
In Mohammed Ali Khalili v. State Farm Lloyds, No. 14-25-00611-CV, Court of Appeals of Texas (April 30, 2026) Khalili maintained a State Farm Lloyds homeowners insurance policy for decades. In 2008 he filed a roof-damage claim; State Farm paid him to replace the entire roof (shingles and gutters). Khalili never replaced the roof and repeated his claim.
BACKGROUND
In 2021 he filed a second roof claim. State Farm’s inspectors found the roof “very old” with extensive non-storm-related damage. The claim was denied because (1) the damage did not exceed the deductible and (2) State Farm had already paid for a full roof replacement.
PROCEDURAL HISTORY
State Farm filed motion for summary...
It is Fraud to Make the Same Claim Twice
Read the full article at https://www.linkedin.com/pulse/fraud-make-same-claim-twice-barry-zalma-esq-cfe-c4g8c and at https://zalma.com/blog.
Chutzpah: After Being Paid for a New Roof Insured Makes Second Claim For Same Damages
Post number 5347
No One is Entitled to be Paid for the Same Loss Twice
In Mohammed Ali Khalili v. State Farm Lloyds, No. 14-25-00611-CV, Court of Appeals of Texas (April 30, 2026) Khalili maintained a State Farm Lloyds homeowners insurance policy for decades. In 2008 he filed a roof-damage claim; State Farm paid him to replace the entire roof (shingles and gutters). Khalili never replaced the roof and repeated his claim.
BACKGROUND
In 2021 he filed a second roof claim. State Farm’s inspectors found the roof “very old” with extensive non-storm-related damage. The claim was denied because (1) the damage did not exceed the deductible and (2) State Farm had already paid for a full roof replacement.
PROCEDURAL HISTORY
State Farm filed motion for summary...
What Must be Done after Notice of a Claim is Received by the Insurer
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A first party property policy does not insure property: it insures a person, partnership, corporation or other entity against the risk of loss of the property. Before an insured can make a claim for indemnity under a policy of first party property insurance the insured must prove that there was damage to property the risk of loss of which was insured by the policy. The obligation imposed on the insured ...
