A federal district court in California has ruled that an insurance company could void a homeowner’s insurance policy based on the insured’s “significant and unexplained misrepresentations” about an alleged burglary at his home — notwithstanding his alleged “memory problems” stemming from a previous “brain injury.”
Statements to homeowners' insurance company
After Floyd Castro’s home was burglarized on April 20, 2014, he reported the burglary to the police. Three days later, he gave a recorded statement to his homeowner’s insurance company, State Farm General Insurance Company.
Castro indicated that tools were stolen from his garage, $6,500 in cash was taken, and at least one piece of musical equipment (a PA system) was stolen.
In early May 2014, Castro submitted a “Personal Property Inventory—Customer Worksheet” listing the following items 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) Mackie PA system, purchased at Guitar Center and valued at $1,100; and
(6) Fender acoustic guitar, given as a gift and valued at $3,250.
State Farm attempted to get more information about some of the musical equipment that Castro said was lost to figure out the exact versions, purchase dates, and purchase prices.
On June 26, 2014, Castro reaffirmed his belief that the stolen guitar was a Fender, that it retailed for $3,000, and that it had been gifted to him by “Jimmy Johnson” who was working in Alaska.
Related: The changing face of fraud
Shortly thereafter, he changed his claim, asserting that the stolen guitar was a Martin guitar in a Fender case (which was why he thought it was a Fender), and was valued at $47,999.
He also sent State Farm an email “as to” the Tascam recorder identifying the model he believed it was and stating that it sold for $1,600.
On June 30, 2014, State Farm paid Castro $4,789.75 for repairs he had to make to doors damaged during the burglary. It also informed him that more information was needed as to the Tascam recorder, the socket set, and other items.
Supplemental report listing stolen items
Castro submitted a supplemental report to the police department listing additional stolen items and provided a copy to State Farm. That list included three Marshal amps and cabinets with speakers and the Martin guitar.
On July 15, 2014, Castro provided State Farm with an unsigned and undated typed note addressed “to State Farm” allegedly from “Doug Fretus” stating that Dreitas (the correct spelling, as later determined by State Farm) had given Castro a Martin D45 Authentic 1942 Dreadnaught Acoustic guitar. The note also included a phone number for Freitas and Castro’s claim number.
On the same day, Castro forwarded to State Farm an unsigned typed note “to State Farm” allegedly from Brian “Tillseth,” indicating that that Tilseth (the correct spelling, as Tilseth later clarified) had sold Castro a Snap On socket set for $6,000 on May 12, 2011. The note included Tilseth’s phone number and Castro’s claim number.
Authenticity of notes questioned
State Farm was concerned about the authenticity of these two notes because they looked to have been drafted by the “same person/printer.”
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.”
Then, 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.
State Farm took a second recorded call statement from Castro on August 1, 2014 in which he confirmed that he had lost at least three Marshall amps and three cabinets, as well as the Mackie PA system. He stated that although he had filed a bankruptcy petition in 2012, he had not listed any of the items he claimed had been stolen on his personal property schedules filed with his bankruptcy petition because he had not known that he was supposed to do so.
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. 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....”
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. 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 had not been disclosed on his bankruptcy schedules.
On August 5, 2014, a State Farm agent contacted Freitas, who admitted giving Castro a Martin guitar, but said that he was too busy to talk and asked the agent to call back. The agent was not able to reach Freitas again.
Inconsistencies & failure to secure accurate responses
Given 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 a prior robbery), State Farm initiated a review for potential fraud.
In a letter to Castro, State Farm explained that it was concerned because there was (i) insufficient clarity on which amps had been stolen and which receipts submitted to State Farm covered the items for which he was seeking coverage and (ii) inadequate proof of the $6,000 payment to Tilseth for the socket set.
On August 27, 2014, State Farm recorded a call with Tilseth. Mr. Tilseth said he did not know where Castro had gotten his tools. According to the agent’s notes, Tilseth told the agent that he had never sold Castro any tools and had never given Castro a written statement of what he had sold or had given to Castro.
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. 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).
State Farm told Castro that Tilseth had said 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 State Farm policy.
State Farm also asked Castro whether he also wrote the computer note from Freitas regarding the Martin guitar, noting that Freitas’ name had been spelled incorrectly on the note. State Farm informed Castro that it intended to notice an examination under oath (“EUO”).
Castro called State Farm on August 29, 2014 and informed the insurer that ilseth was confused and that Tilseth had in fact sold Castro the tools for $6,000 worth of marijuana, which could be confirmed by Tilseth. 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 earlier, and denied writing up “the statement.”
Concealment or fraud provision of the policy
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.
At an 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. Castro also testified that Freitas had prepared the typewritten statement at Castro’s house on Castro’s computer. Castro was not asked about the misspelling of Freitas’ name on the receipt.
As to the socket set, Castro first affirmed that the set had been purchased at a Portland swap meet, as he listed on the original State Farm inventory of stolen items. He later testified that in fact he had given Tilseth $6,000 of marijuana for the set and that Tilseth had typed up the receipt presented to State Farm by Castro on the computer at Castro’s house.
As to the amplifiers, Castro clarified that although at some points he had claimed three Marshall amps and cabinets had been stolen, he now was claiming only one Marshall amp and cabinet had been stolen as well as one Ampeg amp and cabinet, and one Fender amp.
As to the Husqvarna chainsaw, Castro testified that the receipt for it had been stolen in the prior November 2013 burglary.
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.
On October 20, 2014, Castro submitted for the first time a handwritten “Bill of Sale” dated January 2012 stating that he and Tilseth had traded a socket set for marijuana worth around $6,000.
State Farm denied claim, refunded premiums and voided policy
In early 2015, State Farm concluded its investigation and decided to deny the claim and void the policy under its 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 had provided (for example, the various different receipts with misspelled names). 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 had 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.
Insured sued State Farm for breach of contract
After the inception of the litigation, State Farm subpoenaed the production of claims files from Farmers Insurance Company, Inc. These records showed that Castro had submitted a claim to Farmer’s in 2015 for the same April 2014 burglary as was the subject of the State Farm claim. In the Farmer’s claim, Castro sought coverage for some of the same items of property in his State Farm claim, 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). Castro also claimed that the socket set and chainsaw had been purchased from Gino Herrera, not from Tilseth and the Portland swap meet as asserted to State Farm.
Castro stated that he suffered from traumatic brain injury and had two brain operations as a result of a motorcycle accident in 1981. He also said that he had suffered a head injury during an assault in 2013, which had exacerbated his ability to recall and recollect things. He had informed the State Farm claims adjuster of his two brain surgeries, and had attributed some of his difficulty in remembering to his brain surgeries.
He testified at the EUO that he had not been diagnosed by any doctor or medical professional with any memory disorder, had not sought treatment in the prior 12 months for memory issues, had not lost any job positions because of inability to conduct work in the last two years, and the 2013 injury had affected his ability to remember things “prior to” 2013.
Castro claimed that he had never “knowingly and willfully” made any material misrepresentations to State Farm during the claims process and blamed any misrepresentations on his traumatic brain injury.
State Farm moved for summary judgment.
The State Farm policy provided:
2. Concealment or Fraud. This policy is void as to you and any other insured, if you or any other insured under this policy has intentionally concealed or misrepresented any material fact or circumstance relating to this insurance whether before or after a loss.
The district court’s decision
The district court granted the insurer’s motion.
In its decision, the district court first found that Castro’s misrepresentations concerning the source, value, and specifics of the stolen items had given State Farm grounds to deny the claim and to void the policy under its concealment and fraud provision.
Then, the district court ruled that these “significant and unexplained misrepresentations” could “not be explained away by unsubstantiated claims of ‘memory’ problems.” It determined that Castro had not addressed and had provided “no explanation” for his creation and/or submission of “contradictory and questionable documentary evidence.”
The district court declared that “[n]o 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.
Steven A. Meyerowitz, Esq., is the director of FC&S Legal, the editor-in-chief of the Insurance Coverage Law Report, and the founder and president of Meyerowitz Communications Inc. Email him at firstname.lastname@example.org.