The opinion of the court was delivered by: Morrison C. England, Jr. United States District Judge
Plaintiffs seek monetary relief against Defendant Allstate Insurance Company ("Allstate"), for breach of contract and breach of the duty of good faith and fair dealing and violation of fiduciary duties. Allstate now moves to dismiss Plaintiffs' claims pursuant to Federal Rule of Civil Procedure 12(b)(6)*fn1 on grounds that Plaintiffs fail to state a claim on which relief may be granted.
For the reasons set forth below, Allstate's Motion to Dismiss is GRANTED with leave to amend.*fn2
Prior to 2000, and continuing through the present, Plaintiffs held an automotive insurance policy with Allstate which insured Plaintiffs against, inter alia, damages caused by underinsured motorists. On or about May 16, 2007, Plaintiffs' son was killed when struck on his bicycle by a motor vehicle. The motorist at fault was insured by State Farm Insurance Company ("State Farm") for $50,000.
On or about June 13, 2007, Plaintiffs provided Allstate with a copy of the Traffic Collision Report of the accident, advised Allstate regarding an available witness confirming that the motorist had not stopped at a stop sign prior to the collision, advised Allstate that State Farm had agreed to tender the $50,000 limit of the motorist's policy, and advised Allstate that Plaintiffs were making an underinsured motorist ("UIM") claim and medical payment claim pursuant to Plaintiffs' automotive policy.
On or about August 2, 2007, and again on September 7, 2007, October 31, 2007, and November 1, 2007, Plaintiffs allegedly informed Allstate that they had reached a "tentative" settlement with State Farm and were awaiting Allstate's response to their UIM claim before moving forward with the settlement. Plaintiffs further allege that Allstate did not contact them in response to their repeated requests until December 6, 2007, when Allstate contacted Plaintiffs' counsel requesting a copy of the motorist's driver's insurance declaration page, which was provided to Allstate with related documents on December 7, 2007.
On or about January 22, 2008, Plaintiffs allege that Allstate contacted Plaintiffs' counsel requesting copies of medical records and, in response, Plaintiffs' counsel provided Allstate with a copy of the deceased's birth certificate and coroner's record of death. Following this exchange, Allstate made an "offer of settlement" to Plaintiffs on January 25, 2008, conditioned on Plaintiffs providing a copy of the settlement check from the motorist and a signed release between Plaintiffs and the motorist. Plaintiffs provided a copy of the release the same day, and provided a copy of the settlement check from State Farm on February 5, 2008. Plaintiffs allege that Allstate communicated in writing on February 4, 2008 that its tendering the check was conditioned upon execution of a release of claims for bad faith insurance practices. Plaintiffs allege that this contingent release was unlawful.
In its Motion to Dismiss, Allstate states that on February 26, 2008, a phone message was left with Plaintiffs' counsel advising that the release sent with the check "was a mistake," and that Plaintiffs' counsel was "expressly authorized to negotiate the check without signing or returning any release."
On March 20, 2008, Plaintiffs filed their First Amended Complaint for Damages and Demand for Jury Trial in this Court under diversity jurisdiction. Plaintiffs allege two causes of action in their complaint: (1) for Breach of Contract; and (2) for Breach of the Duty of Good Faith and Fair Dealing and Violation of Fiduciary Duties. Plaintiffs seek both compensatory and punitive damages.
On March 25, 2008, Allstate filed this Motion to Dismiss. Allstate challenges both of Plaintiffs' causes of action, arguing that Plaintiffs failed to state a claim on which relief could be granted under Rule 12(b)(6). Allstate contends that under California Insurance Code § 11580.2(p)(3), UIM coverage does not apply until Plaintiffs have exhausted the limits of the bodily injury liability policies available from the insured motor vehicles causing the injury, and submitted proof of this payment to Plaintiffs' insurer. Thus, Plaintiffs' causes of action based on Allstate's actions prior to the maturation of Plaintiffs' UIM claim are insufficient.
On a motion to dismiss for failure to state a claim under Rule 12(b)(6), all allegations of material fact must be accepted as true and construed in the light most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). Federal Rule of Civil Procedure 8(a)(2) requires only "a short and plain statement of the claim showing that the pleader is entitled to relief," in order to "give the defendant fair notice of what the... claim is and the grounds upon which it rests." Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed. 2d 80 (1957). While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the "grounds" of his "entitlement to relief" requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Bell Atl. Corp. v. Twombly, 127 S.Ct. 1955, 1964-65 (2007) (internal citations and quotations omitted). Factual allegations must be enough to raise a right to relief above the speculative level. Id. at 1965 (citing 5 C. Wright & A. Miller, Federal Practice and Procedure § 1216, pp. 235-236 (3d ed. 2004) ("The pleading must contain something more ... than ... a statement of facts that merely creates a suspicion [of] a legally cognizable right of action").
If the court grants a motion to dismiss a complaint, it must then decide whether to grant leave to amend. The court should "freely give" leave to amend when there is no "undue delay, bad faith[,] dilatory motive on the part of the movant... undue prejudice to the opposing party by virtue of... the amendment, [or] futility of the amendment...." Fed. R. Civ. P. 15(a); Foman v. Davis, 371 U.S. 178, 182 (1962). Generally, leave to amend is only denied when it is clear that the ...