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Castro v. State Farm General Insurance Co.

United States District Court, N.D. California

June 7, 2017

FLOYD CASTRO, Plaintiff,


          William H. Orrick United States District Judge.

         Plaintiff Floyd Castro submitted a homeowner's insurance claim to State Farm following the burglary of his home in April 2014, claiming that a significant amount of cash, a number of expensive tools and expensive musical equipment were stolen. State Farm denied the claim and voided Castro's policy under its Concealment and Fraud provision because of Castro's multiple material misrepresentations about the value and source of the stolen tools and equipment.[1] It now moves for summary judgment, or partial summary judgment, because its conduct was justified. Castro opposes because any misrepresentations are explained by plaintiff's memory problems, of which State Farm was fully aware. Indeed, he argues that State Farm's investigation was conducted in bad faith because, having knowledge of Castro's memory problems, it should have sent him for an Independent Medical Exam prior to denying his claim for misrepresentations. Castro's misrepresentations were numerous and material, and he introduced no evidence of memory issues that a reasonable jury would find as an excuse for his obviously false and inconsistent submissions. I GRANT State Farm's motion.


         On April 20, 2014, Castro's home was burglarized. Declaration of Floyd Castro [Dkt. No. 33-1] ¶ 5. He reported the burglary to the police. He made at least two online reports to the police department about items that were stolen from his home. Castro Decl. ¶ 5.

         Castro had a homeowner's insurance policy with State Farm (the “Policy”), and opened a claim on April 21, 2014. On April 23, 2014, Castro gave a recorded statement to State Farm indicating that tools were stolen from his garage, $6500 in cash was taken, and at least one piece of musical equipment (a PA system) was stolen. April Statement, Ex. A. to the Declaration of John T. Bell [Dkt. No. 33-2] at 7:6-10; Declaration of Maria Okino [Dkt. No. 27] at 22:5-8. In early May 2014, he submitted a “Personal Property Inventory - Customer Worksheet” listing the following items (as relevant to this motion) as stolen: (1) Husqvarna chain saw, purchased at Sears and valued at $600; (2) Tascam recorder, purchased online and valued at $500; (3) socket set, purchased in Portland and valued at $6, 000; (4) Martin hunting bow, purchased in Portland and valued at $1, 000; (5) a Mackie PA system, purchased at Guitar Center and valued at $1, 100; and (6) a fender acoustic guitar, given as a gift and valued at $3, 250. Okino Decl., Ex. 5.

         During this general time frame, State Farm had a number of contacts with Castro, asking for receipts and other proofs of payment for the stolen items. See, e.g., Okino Decl., Exs. 12-13. State Farm attempted to get more information about some of the musical equipment that was lost, to figure out the exact versions, purchase dates, and purchase prices. See, e.g., Ex. 13. On June 26, 2014, Castro reaffirmed his belief that the stolen guitar was a fender, that it retailed for $3, 000, and that it was gifted to him by “Jimmy Johnson” who was working in Alaska. Ex. 13. Shortly thereafter, he changed his claim, asserting that the stolen guitar was a Martin guitar in a Fender case (which is why he thought it was a Fender), and was valued at $47, 999. Okino Decl., Exs. 15-16. On June 28, 2014, he sent State Farm an email “as to” the Tascam recorder identifying the model he believed it was and stating that it sells for $1600. Okino Decl., Ex. 12.

         On June 30, 2014, State Farm paid Castro $4, 789.75 for repairs Castro had to make to doors damaged during the burglary. Okino Decl., Ex. 14. It also informed him that more information was needed as to the Tascam recorder, the socket set, and other items. Id. On July 1, 2014, Castro submitted a supplemental report to the police department listing additional stolen items and provided a copy to State Farm. Okino Decl., Ex. 15. That list included three Marshal amps and cabinets with speakers and the Martin guitar. Id. On July 15, 2014, Castro provided State Farm with an unsigned and undated typed note addressed “to State Farm” allegedly from “Doug Fretus”[2] stating that Freitas gave Castro a Martin D45 Authentic 1942 Dreadnaught Acoustic guitar. Okino Decl. Ex. 16. The note also included a phone number for Freitas and Castro's claim number. Id. On the same day, Castro forwarded to State Farm an unsigned typed note “to State Farm” allegedly from Brian “Tillseth, ” indicating that Tilseth sold Castro a Snap On socket set on May 12, 2011 for $6, 000. Id.[3] The note included Tilseth's phone number and Castro's claim number. Id. State Farm was concerned about the authenticity of these notes because they looked to have been drafted by the “same person/printer.” Okino Decl., Ex. 23.

         On July 18, 2014, State Farm informed Castro that it needed a copy of his revised police report and more documentation regarding the Tascam recorder, the socket set, amplifiers, and the “Fender Acoustic guitar.” Okino Decl., Ex. 17. On July 22, 2014, State Farm performed an online search and found that Castro had made a prior homeowners insurance policy claim for stolen items in November 2013 and had made numerous claims over the past years, some of which had been referred for further investigation because of suspected fraud. Okino Decl., Ex. 18.

         State Farm took a second recorded call statement from Castro on August 1, 2014. August Statement, Ex. B. to Bell Declaration; Ex. 20 to the Okino Decl. In that call, Castro confirmed that he lost at least three Marshall amps and three cabinets, as well as the Mackie PA system. August Statement at 8:6-9:20, 18:13. Castro stated that although he had filed a bankruptcy petition in 2012, he did not list any of the items he claimed were stolen in April 2014 on his personal property schedules filed with his bankruptcy petition because he did not know he was supposed to. Id. at 18:7 - 19:3. The State Farm agent explained that Castro might want to reopen his bankruptcy petition to disclose those items, because if they were not included on Castro's petition then State Farm would not be able to include those items in this claim. Id. 19:20 - 20:13. In closing, the State Farm agent indicated he would continue to investigate the claim and would “check on the bankruptcy, um, issue as well. Just again check whether or not they need anything updated on the bankruptcy or not. . . . I hope to get back in touch with you, ah, next week with, you know, the information with regard to the bankruptcy . . . .” August Statement at 24:21 - 25:3. Castro took that as an indication that unless he heard back from the agent, he did not need to do anything with respect to his bankruptcy petition. Castro Decl. ¶ 8. However, in an August 18, 2014 letter, Castro was informed that he should contact the bankruptcy trustee and his bankruptcy attorney because the property for which he was claiming a loss was not disclosed on his bankruptcy schedules. Okino Decl., Ex. 25.[4]

         On August 5, 2014, a State Farm agent contacted Doug Freitas. Freitas admitted giving Castro a Martin guitar, but said that he was too busy to talk and asked the agent to call back. Okino Decl., Ex. 21. The agent was never able to reach Freitas again. Okino Decl., Ex. 40 at 313.

         Given the inconsistencies in Castro's testimony and the failure to secure accurate responses regarding the source and value of a number of the items, and because it appeared that he was seeking recovery for property (including a Marshal amp) for which he had sought coverage in his prior State Farm claim (from the November 2013 robbery), State Farm initiated a review for potential fraud. Okino Decl., Ex. 23. In an August 18, 2014 letter to Castro, State Farm explained that it was concerned because there was (i) insufficient clarity on which amps were stolen in 2014 and which receipts submitted to State Farm covered the items for which he was currently seeking coverage and (ii) inadequate proof of the $6000 payment to Tilseth for the socket set. Id.

         On August 27, 2014, State Farm recorded a call with Brian Tilseth. Okino Decl., Ex. 26.[5] Tilseth said he did not know where Castro had gotten his tools. Id. at 10:13-11:2. According to the agent's notes, Tilseth told the agent that he had never sold Castro any tools and never gave Castro a written statement of what he sold or gave to Castro. Okino Decl., Ex. 27 at 194. Following the calls to Tilseth and Freitas, Castro called the State Farm agent to question why State Farm was “riding” his friends about the claim. Id. at 193. When questioned about the tools, Castro indicated that Tilseth “wrote the [typed] note” about the sale of the socket set for $6, 000 (although Tilseth's name was misspelled). Id. State Farm told Castro that Tilseth had informed them that he had not sold Castro any tools and had not provided any written statement, creating inconsistencies and implicating the Concealment and Fraud provision of the Policy. Id.[6] State Farm also asked Castro whether Castro also wrote the computer note from Doug Freitas regarding the Martin guitar, noting that Freitas' name was spelled incorrectly on the note. Id. State Farm informed Castro that it intended to notice an Examination Under Oath (“EUO”).

         On August 29, 2014, Castro called State Farm and informed them that Tilseth was confused and that Tilseth had in fact sold Castro the tools for $6, 000 worth of marijuana, which could be confirmed by Tilseth. Okino Decl., Ex. 28. The agent called Tilseth, who “recanted” some of his prior statements, admitted selling Castro the tools for two pounds of marijuana, stated that he typed up a receipt for the trade for Castro when the sale was made two years ago, and denied writing up “the statement.” Id.[7]

         On September 8, 2014, State Farm informed Castro in writing of the inconsistencies in his claim, including the source and cost of the socket tools and whether a legitimate receipt existed for the purchase from Tilseth to Castro, and the quality, brands and the source of amps that were lost as a result of the April 2014 burglary (as opposed to the prior burglary and prior claim processed from November 2013), and stated that those concerns raised questions whether the Concealment or Fraud provision of the Policy applied. Okino Decl., Ex. 29.[8] An EUO was scheduled for Tuesday September 30, 2017, and Castro was asked to bring documentation regarding his losses. Okino Decl., Ex. 30.

         In his EUO, Castro provided additional testimony regarding the origin of a number of items. As to the Martin guitar, Castro testified that although he played the guitar once or twice a week, he did not realize that the Martin guitar was stolen because it was kept in a Fender case. Okino Decl., Ex. 31 (“EUO Tr.”) at 88:14 - 89:16; 93:9 - 94:22. Castro also testified that Freitas prepared the typewritten statement at Castro's house on Castro's computer. Id. at 107:20 - 108:3. Castro was not asked about the misspelling of Freitas's name on the receipt. As to the socket set, Castro first affirmed that the set was purchased at a Portland swap meet, as he listed on the original State Farm inventory of stolen items. Id. 81:7-17. He later testified that in fact he had given Tilseth $6, 000 of marijuana for the set and that Tilseth typed up the receipt presented to State Farm by Castro on the computer at Castro's house. Id. 106:3- 107:16; 108:4-6.

         As to the amplifiers, Castro clarified that although at some points he had claimed three Marshall amps and cabinets were stolen, he was now claiming only one Marshall amp and cabinet was stolen as well as one Ampeg amp and cabinet, and one Fender amp. Id. 97:10 - 98:17. As to the Husqvarna chainsaw, Castro testified that the receipt for it was stolen in the prior November 2013 burglary. Id. at 78:5-19. As to the Tascam recorder, he agreed with his initial inventory that it was worth $500 and purchased online, but did not mention his prior email to State Farm claiming it was valued at $1, 600. Id. at 78:23 - 79:12; see also Okino Decl., Ex. 12.

         On October 20, 2014, Castro submitted for the first time a handwritten “Bill of Sale” dated January 2012 stating that he and Brian Tilseth traded a socket set for marijuana worth around $6, 000. Okino Decl., Ex. 32.

         In early 2015, State Farm concluded its investigation and decided to deny the claim and void the Policy under the Concealment and Fraud provision because of Castro's shifting explanations regarding the source and value of a number of items, as well as the inconsistencies in the documents he provided (e.g., the various different receipts with misspelled names). Okino Decl., Ex. 40. State Farm also relied on Castro's failure to include the items for which he sought coverage as assets in his bankruptcy schedules, at least not until the State Farm agent pointed it out as a problem. By letters dated February 13, 2015 and March 3, 2015, State Farm denied the claim, refunded Castro's premium payments, and voided the Policy. Okino Decl., Exs. 42, 43.

         Castro filed suit against State Farm for breach of contract and breach of the duty of good faith and fair dealing in state court on May 22, 2015. Dkt. No. 1. After State Farm was served in November 2015, it removed the case to this Court on December 14, 2105. Id. After the inception of this litigation, State Farm subpoenaed the production of claims files from Farmers Insurance Company, Inc. Okino Decl., Ex. 45. These records showed that Castro submitted a claim to Farmer's in 2015 for the same April 2014 burglary (“Farmer's Claim”) as was the subject of the State Farm claim. Id. at 351 - 369. In the Farmer's Claim, Castro sought coverage for some of the same items of property at issue here, but valued them differently. For example, in the Farmer's Claim Castro valued the socket set at $400 (not $6, 000), the chainsaw at $200 (not $600), a “gifted” Martin guitar for $200, later revised to $5, 300 (not $47, 999), the Tascam recorder at $460 (not $500 and later $1, 600), and the Martin hunting bow for $200 (not $1, 000). Id. at 354, 360, 362, 363. Castro also claimed that the socket set and chainsaw were purchased from Gino Herrera, not from Tilseth and the Portland swap meet as asserted here. Id. 363.[9]

         Castro states that he suffers from traumatic brain injury and had two brain operations as a result of a motorcycle accident in 1981. Castro Decl. ¶ 2. He also suffered a head injury during an assault in 2013, which exacerbated his ability to recall and recollect things. Id. ¶ 3.[10] He informed the State Farm claims adjuster in his April and August statements of his two brain surgeries. April Statement at 16:7-8; August Statement at 22:19. During his August 1 statement, Castro attributed some of his difficulty in remembering to his brain surgeries. August Statement at 22:23-25, 23:1-2. At the October 8, 2014 EUO, he informed State Farm's attorney that he was having problems recollecting due to his severe head trauma, including the more recent 2013 attack. Ex. C to Bell Decl. & Ex. 31 to Okino Decl., EUO Tr. at 30:15-19, 31:7-10. However, he also testified that he has not been diagnosed by any doctor or medical professional with any memory disorder, had not sought treatment in the last 12 months for memory issues, had not lost any job positions because of inability to conduct work in the last two years, and that the 2013 injury affected his ...

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