Without knowing all the specifics of the situation and being able to personally review all of the documentation (insurance payout documents, police reports, appraisals, invoices, fraudulent documents from the contractor, etc.), I cannot provide advice specific to your situation. There are many moving pieces and parts here.
What I can do is recommend that you thoroughly study IRS Publication 547, the instructions for Form 4684, and IRC 1033 before you proceed further. It may also be beneficial to have a consultation with a tax professional in person so that he/she can review all of your paperwork and provide a more holistic view on how to approach this situation.
I wish you the best of luck here.
@zenglian
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