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.
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
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"
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
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.
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.
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.
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
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.
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.
Summary judgment on a claim or defense is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). In order to prevail, a party moving for summary judgment must show the absence of a genuine issue of material fact with respect to an essential element of the non-moving party's claim, or to a defense on which the non-moving party will bear the burden of persuasion at trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Once the movant has made this showing, the burden then shifts to the party opposing summary judgment to identify "specific facts showing there is a genuine issue for trial." Id. The party opposing summary judgment must then present affirmative evidence from which a jury could return a verdict in that party's favor. Anderson v. Liberty Lobby, 477 U.S. 242, 257, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
On summary judgment, the court draws all reasonable factual inferences in favor of the non-movant. Id. at 255, 106 S.Ct. 2505. In deciding a motion for summary judgment, "[c]redibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge." Id. However, conclusory and speculative testimony does not raise genuine issues of fact and is insufficient to defeat summary judgment. See Thornhill Publ'g Co., Inc. v. GTE Corp., 594 F.2d 730, 738 (9th Cir. 1979).
State Farm argues that Castro's undisputed misrepresentations concerning the source, value, and specifics of the stolen items gave it grounds to deny the claim and void the Policy under the Concealment and Fraud provision. "Generally, the issue of whether the insured's false statement was knowingly and intentionally made with knowledge of its falsity and with intent of defrauding the insurer is a question of fact." Cummings v. Fire Ins. Exch., 202 Cal.App.3d 1407, 1417, 249 Cal.Rptr. 568 (Cal. Ct. App. 1988).
State Farm highlights the following inconsistencies and misrepresentations:
Castro attempts to wipe away the impact of his changing explanations, as well as those of Tilseth, by blaming his memory problems due to traumatic brain injuries. Other than Castro's own statements in his declaration that he did not intentionally intend to mislead State Farm and that any misstatements were the result of his memory problems from his traumatic brain injury, there is no evidence that Castro has any memory impairment. He admitted in his EUO that he had not received any diagnosis of a memory impairment, had not sought medical treatment for his traumatic brain injury or memory impairment in past 12 months, and had not lost any job opportunities because of it in the past two years.
I do not think that the misstatements as to source and payment have been explained by any alleged lapse of memory. Leaving those aside, there is also the admission that Castro and Tilseth's initial explanation of an exchange of $6,000 in cash for the tools was false, later explained because they did not want to disclose the trade was for marijuana. That might be plausible. But there are also the two unexplained different "receipts" Castro submitted, which themselves contain misstatements. Castro makes no effort to explain the origin of these two different statements (when Tilseth denied anything other than typing up a statement at the time of the trade in 2012) or their different representations (as to date and terms). It is one thing to misstate facts when giving testimony because of confusion or mistake. It is another to produce different written receipts that themselves contain material inconsistencies. While memory problems (if they exist) might explain some of the shifting explanations regarding source and lack of recollection as to date or other specifics, that cannot account for the apparent creation and submission of different receipts without explanation. State Farm was entitled to invoke the Concealment and Fraud provision to deny the claim and void the Policy on this ground alone.
State Farm has a duty to fully and reasonably investigate a claim and attempt to value lost items. Where nothing other than a typed-written receipt has been provided as "proof," itself containing suspect errors, and no evidence has been provided to oppose summary judgment given the misrepresentations and inconsistencies identified by State Farm on which it based denial of the claim, summary judgment to State Farm is appropriate.
These significant and unexplained misrepresentations cannot be explained away by unsubstantiated claims of "memory" problems. Castro does not address and provides no explanation for his creation and/or submission of contradictory and questionable documentary evidence. No reasonable juror could conclude upon the undisputed record here that State Farm was not entitled to deny the claim and void the Policy under the Concealment and Fraud provision of the Policy.
State Farm was unaware of the Farmer's Claim when it denied Castro's claim. While I do not need to rely on the evidence from Castro's Farmer's Claim in ruling on the question of whether State Farm properly invoked the Concealment and Fraud exception, it only strengthens the grounds for State Farm to void the Policy for Concealment and Fraud. Castro's credibility is fatally undermined by the Farmer's Claim evidence.
In sum, State Farm is entitled to summary judgment that it was entitled to deny the claim and void the Policy under the Concealment and Fraud provision of the Policy.
"[T]o establish breach of the implied covenant: (1) benefits due under the policy must have been withheld; and (2) the reason for withholding benefits must have been unreasonable or without proper cause." Love v. Fire Ins. Exch., 221 Cal.App.3d 1136, 1151, 271 Cal.Rptr. 246 (1990); see also Century Sur. Co. v. Polisso, 139 Cal.App.4th 922, 949, 43 Cal.Rptr.3d 468 (2006) ("a breach of the implied covenant of good faith and fair dealing involves something more than a breach of the contract or mistaken judgment.... There must be proof the insurer failed or refused to discharge its contractual duties not because of an honest mistake, bad judgment, or negligence, `but rather by a conscious and deliberate act, which unfairly frustrates the agreed common purposes and disappoints the reasonable expectations of the other party thereby depriving that party of the benefits of the agreement.'" (internal citation omitted)).
"Withholding benefits due under the policy is not unreasonable if there was a genuine dispute between the insurer and the insured as to coverage or the amount of payment due." Rappaport-Scott v. Interinsurance Exchange, 146 Cal.App.4th 831, 837, 53 Cal.Rptr.3d 245 (2007). However, "the genuine dispute rule does not relieve an insurer from its obligation to thoroughly and fairly investigate, process and evaluate the insured's claim. A genuine dispute exists only where the insurer's position is maintained in good faith and on reasonable grounds." Wilson v. 21st Century Ins. Co., 42 Cal.4th 713, 723, 68 Cal.Rptr.3d 746, 171 P.3d 1082 (2007).
"While the reasonableness of an insurer's claims-handling conduct is ordinarily a question of fact, it becomes a question of law where the evidence is undisputed and only one reasonable inference can be drawn from the evidence." Chateau Chamberay Homeowners Ass'n v. Associated Int'l Ins. Co., 90 Cal.App.4th 335, 346, 108 Cal.Rptr.2d 776 (2001), as modified on denial of reh'g (July 30, 2001). Where there is a "genuine dispute" over an insurer's duty to pay benefits, the insurer does not breach the implied covenant. Id. at 347, 108 Cal.Rptr.2d 776.
In Opposition, Castro argues that State Farm breached its duty to fully investigate Castro's claim because it had knowledge of Castro's brain trauma but never secured an Independent Medical Exam (IME) to ascertain whether Castro's brain injury played a role in his alleged inability to comply with the terms of the Policy before denying the claim and voiding the Policy under the Concealment and Fraud provision. Oppo. 18-19. As an initial matter, as discussed above, it was not only the inconsistencies in Castro's testimony that led State Farm to conclude Concealment and Fraud were at play, but also that Castro produced suspect "evidence" including "statements" allegedly typed by Tilseth and Freitas on Castro's computer where Tilseth and Feitas misspelled their own names, and the belated October 2014 handwritten Tilseth receipt. The circumstances surrounding these documents support a conclusion of fraud, not just mistake or omission. Moreover, as State Farm clarified in the EUO, Castro does not have a diagnosed memory condition, has not sought treatment for any memory issues, and has not lost job opportunities as a result of his memory problems. All that
The undisputed evidence shows that State Farm conducted a thorough and fair investigation. At a minimum, and even if I had not determined above that State Farm was entitled to deny the claim and void the Policy under the Concealment and Fraud provision, given the evidence about the continual shifting of the information regarding the source, value, and sometimes type of the objects claimed stolen by Castro, there was a "genuine dispute" over coverage that precludes a bad faith claim as a matter of law.
State Farm also argues that it is entitled to summary judgment on plaintiff's claim for punitive damages because both its investigation of and determination on Castro's claim was reasonable and done in good faith. Where there is no bad faith as a matter of law, there can be no basis for punitive damages. See, e.g., Behnke v. State Farm Gen. Ins. Co., 196 Cal.App.4th 1443, 1470, 127 Cal.Rptr.3d 372 (2011); Chaidez v. Progressive Choice Ins. Co., No. CV 12-03753 RSWL, 2013 WL 1935362, at *7 (C.D. Cal. May 9, 2013).
For the foregoing reasons, summary judgment is entered in favor of State Farm.
