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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3. respondents failed to disclose Marchino’s GEICO insurance and its payment for repairs....
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Post number 5368
Posted on June 9, 2026 by Barry Zalma
In Prime Insurance Company, Inc. v. Medicab Transportation, LLC, Jason Rhodes, and Dale Johnson v. Prime Insurance Company, Inc and Prime Property & Casualty Insurance, Inc. No. 2:24-cv-421-SPC-KRH, United States District Court, M.D. Florida, Fort Myers Division (June 3, 2026) Medicab, a paratransit company, bought two policies in 2021: a Business Auto Policy from PPCI and a Commercial Liability Policy from Prime. Both policies, as originally written, appeared to cover injuries arising from loading and unloading patients from Medicab vans.
After a patient, Margaret St. Aubin, fell while being unloaded from a van and suffered injuries, her Estate made a $1 million demand. Prime and its claims administrator concluded that the Commercial Policy’s loading/unloading language had been included by mutual mistake, because...
Full Faith and Credit Act Controlled
Read the full article at https://lnkd.in/evHXiiFE and at https://zalma.com/blog.
Posted on June 9, 2026 by Barry Zalma
Post number 5368
Posted on June 9, 2026 by Barry Zalma
In Prime Insurance Company, Inc. v. Medicab Transportation, LLC, Jason Rhodes, and Dale Johnson v. Prime Insurance Company, Inc and Prime Property & Casualty Insurance, Inc. No. 2:24-cv-421-SPC-KRH, United States District Court, M.D. Florida, Fort Myers Division (June 3, 2026) Medicab, a paratransit company, bought two policies in 2021: a Business Auto Policy from PPCI and a Commercial Liability Policy from Prime. Both policies, as originally written, appeared to cover injuries arising from loading and unloading patients from Medicab vans.
After a patient, Margaret St. Aubin, fell while being unloaded from a van and suffered injuries, her Estate made a $1 million demand. Prime and its claims administrator concluded that the Commercial Policy’s loading/unloading language had been included by mutual mistake, because...
