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Now Lenny Dykstra Takes On Insurance Industry

The Lenny Dykstra bankruptcy saga is like a reality TV show, which is exactly what he says he's working on ("Tough as Nails"? "Nailed"? "Biting Nails"? "Hang Nails"?). There will be no lack of drama.

Dykstra filed for bankruptcy in July to avoid foreclosure on the mansion he bought from Wayne Gretzky in 2007 for $17.5 million. He claimed he was the victim of mortgage fraud by Washington Mutual.

Now he claims the insurance industry is doing him wrong as well. "Everybody hates their insurance companies," he tells me. "I don't want this to happen to other people."

Dykstra this time says he's the victim of Fireman's Fund, which insured not only the $17.5 million mansion, but another multimillion dollar home Dykstra owns nearby inside Sherwood Country Club. The second home is vacant due to mold. Fireman's Fund has set aside hundreds of thousands of dollars to fix that problem, but there's a dispute over whom the checks are made out to--it's a joint account, but Dykstra is estranged from his wife. As a result, the money sits idle and repairs have not been made to the house.

Now Dykstra says the main house, the one he bought from Gretzky, is riddled with water damage which Dykstra estimates will cost $10 million to repair. The palatial estate is pockmarked with torn up flooring, holes in walls, missing toilets, as inspectors have tried to determine the extent of the problem. Here is video we shot of this.

It's much different than the video we shot inside the same house in July.

Dykstra says the insurance company is balking at his claims, even as he says the tear-up was done with the help of Fireman's Fund experts. The insurance company couldn't disagree more. "Fireman's Fund Insurance Company has been working very hard with the Dykstras and their attorneys to do everything that we can to resolve their claims," a spokeswoman tells me. "The removal of fixtures at the house that Mr. Dykstra references was not done at our request or even with our knowledge."

And then there's this. Dykstra is demanding the insurance company make good on its policy to put him up in a temporary residence because he says the house is now unlivable. "I don't mean to be crude," he says, "but where do they expect me to (go to the bathroom)?" He claims he has been "living in his car," though last night he says he stayed in the lobby of a Westwood hotel. Fireman's Fund says it's already providing a temporary residence for the Dykstras, and Mrs. Dykstra is living there. Lenny Dykstra wants his own place, but since they have a joint account, they're only being provided with a joint temporary residence.

All of this doesn't bode well for Dykstra's appearance before a bankruptcy judge next week, which could determine whether his bankruptcy stays in Chapter 11, or moves to Chapter 7 liquidation. The judge ruled earlier that the baseball legend and investor must appear in court with proof that both of his homes have been listed for sale, a situation made difficult by the fact that both are a mess. The judge is also insisting that Dykstra provide proof of insurance for the homes. Fireman's Fund cancelled the insurance when it expired this summer, but Dykstra claims that was done illegally, as he never received notification ahead of time. The insurance company told me it has no comment on whether it is currently covering either home. "This is a complex and challenging situation," a spokeswoman says, "which we are actively trying to resolve in a timely and mutually satisfactory manner."

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  • Based in Los Angeles, Jane Wells is a CNBC business news reporter and also writes the Funny Business blog for CNBC.com.

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