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Aquarius Well Drilling Inc., et al v. American States Insurance Co.

July 13, 2012


The opinion of the court was delivered by: Morrison C. England, Jr. United States District Judge


Before the Court is Defendants American States Insurance Company ("ASIC") and General Insurance Company of America's ("General") Motion to Dismiss Plaintiffs Aquarius Well Drilling and Ray and Sharon Williamson's Complaint (ECF No. 6) ("MTD").*fn1

For the reasons that follow, Defendants' Motion to Dismiss is GRANTED with leave to amend.


Aquarius is a California Corporation engaged in the well drilling and well testing business. (Complaint ("Compl.), ECF No. 1 ¶ 1). The Williamsons are husband and wife and are the sole officers, directors and shareholders of Aquarius. (Id.) The Defendants are both insurers.*fn3 (Id.)

Plaintiffs contend that, at all relevant times, they were insured by Defendants by means of a commercial general liability policy, No. 01-CG-326500 ("the Policy").*fn4 (Id. ¶ 3.)

In the policy, Defendants allegedly promised to pay those sums Aquarius becomes legally obligated to pay, including damages and attorneys' fees because of property damage or loss of use of tangible property that is not injured caused by an "occurrence," defined as an "accident." (Id. ¶ 7.)

On November 16, 2011, non-parties to this action, Laurie and Robert Manley, filed a complaint against Aquarius. (Id. ¶ 9.) In this underlying lawsuit, Aquarius contends that the Manleys charged Aquarius with negligence in testing a well on certain real property, that thereafter the Manleys purchased the property, and that in September 2009, the well suddenly and unexpectedly ceased producing water while the Manleys depended on it as a source of water. (Id.)

Aquarius alleges that it promptly notified Defendants of the Manleys' lawsuit and tendered defense. (Id. ¶ 10.) However, on January 16, 2012, Defendants sent Aquarius a letter in which they declined to defend, claiming that the policy did not cover the matters alleged in the lawsuit. (Id. ¶ 11.) On January 19, Defendants then sent a Notice of Non-renewal to Aquarius stating the Policy would expire on March 26. (Id. ¶ 12.) Then, on January 23, Aquarius asked Defendants to reconsider their denial, which, on February 15, Defendants also denied. (Id. ¶¶ 13.)

On April 12, 2012, Plaintiffs filed their Complaint in this Court on the basis of diversity jurisdiction. (ECF No. 1). In their Complaint, Plaintiffs generally allege that Defendants were obligated to defend the Manleys' lawsuit because the lawsuit alleged that Aquarius had negligently tested the well, and that the well thereafter unexpectedly ceased producing water, interfering with the Manleys' use of the property. (Id. ¶ 9.) In Plaintiffs' view, these claims sufficiently stated an "occurrence" to trigger Defendants' duty to defend. (Id. ¶¶ 9-10,19-24.) Plaintiffs bring claims for (1) breach of contract; (2) breach of the covenant of good faith and fair dealing; (3) estoppel; and (4) intentional infliction of emotional distress. (Id. at pages 4-9.) They seek various damages, as well as attorney fees and costs and a determination that Defendants are estopped from denying coverage. (Id. at pages 9-10.)

Defendants move to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6).*fn5 (Motion to Dismiss ("MTD"), ECF No. 6.) Defendants' primary contention is that the Policy covered property damage only if caused by an "occurrence," which is defined as an "accident," and that "the Manleys' lawsuit merely alleged that Aquarius gave bad professional advice as to the well's water supply." (Id. at 7.) Defendants contend that, "[u]nder California law, an insured's bad professional advice or opinion does not amount to an accident or 'occurrence' triggering the insurer's duty to defend." (Id.)


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). Rule 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." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 554-55 (2007) (internal citations and quotations omitted).

Though "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." Id. at 555 (internal citations and quotations omitted). A plaintiff's factual allegations must be enough to raise a right to relief above the speculative level. Id. (citing 5 C. Wright &

A. Miller, Federal Practice and Procedure § 1216, pp. 235-36 (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")).

Moreover, "Rule 8(a)(2) . . . requires a 'showing,' rather than a blanket assertion of entitlement to relief. Without some factual allegation in the complaint, it is hard to see how a claimant could satisfy the requirements of providing not only 'fair notice' of the nature of the claim, but also 'grounds' on which the claim rests." Twombly, 550 U.S. at 555, n.3 (internal citations omitted). A pleading must contain "only enough facts to state a claim to relief that is plausible on its face." Id. at 570; see also Ashcroft v. Iqbal, 556 U.S. 662, 677-679 (2009). If the "plaintiffs . . . have not ...

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