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Christmas fire turns into insurance, tax battle
For a couple whose home burned to the ground on Christmas day, a legal fight with their insurance company ensued that would stretch nearly a decade.
In November 2002, Mark and Jennifer Ambrose’s home was damaged by an appliance fire. Their insurance carrier contracted with a fire damage restoration company to repair the damage. On Dec. 25, 2002, a second, larger fire destroyed the home.
The day after Christmas, Mark Ambrose reported the second fire to the insurance carrier. On Dec. 27, 2002, an insurance adjuster met with the Ambroses and inspected the property. On Jan. 29, 2003, the insurance carrier sent a letter to the Ambroses stating that it had not yet received a “personal property inventory” requested by the adjuster and telling the Ambroses that they had 60 days to submit a “proof of loss.”
The Ambroses claimed they never received the January 29 letter. In meetings with a representative of the insurance carrier in March and April of 2003, the Ambroses were asked for the “proof of loss,” which they provided on April 23, 2003.
The insurance carrier denied their claim because the Ambroses did not file a “proof of loss” within 60 days, as required by their insurance policy and because the insurance company’s investigation revealed it was “highly probable” the fire was intentionally caused.
The Ambroses sued the insurance carrier but lost their case in the New York Supreme Court. At the same time, they sued the fire damage restoration company for negligence. The New York Supreme Court also ruled against the Ambroses in that case.
The couple next turned to the tax law and claimed a casualty loss deduction, which was denied by the IRS. The IRS cited Internal Revenue Code Section 165(h)(5)(E), which denies a casualty loss deduction to anyone who fails to timely file an insurance claim.
Having been denied restitution by their insurance carrier, the restoration company, the New York Supreme Court (twice) and the IRS, the Ambroses finally found some relief in the Court of Federal Claims (Mark D. Ambrose and Jennifer L. Ambrose v. United States, FedCl, 2012-2 USTC ¶50,518, Aug. 3, 2012).
That court ruled that Mark’s report to the insurance carrier on Dec. 26, 2002, constituted the timely filing of a claim, at least for purposes of the tax law. The insurance carrier even issued a claim number, based on that contact.
The plain meaning of the word “claim,” the court found, encompasses a demand for something as rightful or due. It does not require details specific enough to permit the liable party to evaluate and quantify its liability.
The technical information here is necessarily brief. No final conclusion on these topics should be drawn without further review and consultation. Please be advised that, based on current IRS rules and standards, the information contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty assessed by the IRS.
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