Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_12-cv-00971/USCOURTS-caed-2_12-cv-00971-1/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Insurance Contract

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UNITED STATES DISTRICT COURT 

EASTERN DISTRICT OF CALIFORNIA 

AQUARIUS WELL DRILLING, INC., 

RAY WILLIAMSON, and SHARON 

WILLIAMSON, 

Plaintiffs, 

v. 

AMERICAN STATES INSURANCE 

CO., 

Defendant. 

No. 2:12-cv-00971-MCE-CMK 

MEMORANDUM AND ORDER 

Plaintiffs Aquarius Well Drilling, Inc. (“Aquarius”) and Ray Williamson and Sharon 

Williamson (“Williamsons”) seek redress from Defendant American States Insurance 

Company (“Defendant”) based on multiple claims brought under California state law. 

Jurisdiction is premised on diversity. Presently before the Court is Defendant’s Motion to 

Dismiss Plaintiffs’ First Amended Complaint (“MTD”) for failure to state a claim upon 

which relief may be granted pursuant to Federal Rule of Civil Procedure 12(b)(6).1

 (ECF 

No. 15.) 

 1

 All further references to “Rule” or “Rules” are to the Federal Rules of Civil Procedure unless 

otherwise noted. 

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Defendant also filed a Request for Judicial Notice (“RJN”) of certain documents. (ECF 

No. 15-1.)2 Defendant’s Motion was filed on August 13, 2012. Plaintiffs filed a timely 

opposition on September 5, 2012. (ECF No. 16.) Defendant filed a reply to Plaintiffs’ 

opposition on September 12, 2012. (ECF No. 17.) For the reasons stated below, 

Defendant’s Motion to Dismiss is GRANTED without leave to amend.3

BACKGROUND4

Aquarius is a California corporation engaged in the well drilling and well testing 

business. The Williamsons are the sole executive officers, directors and shareholders of 

Aquarius. Defendant is an insurer. 

The Williamsons carried and paid premiums for insurance protecting Aquarius, 

and with the exception of a property loss claim that did not exceed the deductible, and a 

claim for employee theft, which was denied, the Williamsons have not requested 

coverage for claims until the present matter. Plaintiffs were insured by Defendant’s Ultra 

Speciality Services Policy, a commercial general liability policy, No. 01-CG-326500 

(“Policy”). The Policy names Aquarius Well Drilling, Inc. as the named insured.5

 

 2

 Defendant requests judicial notice of the November 16, 2011, state court complaint against 

Aquarius brought by Laura and Robert Manley. (ECF No. 15-1.) Defendant’s request is unopposed and 

the subject document is attached to Plaintiffs’ First Amended Complaint as an exhibit. (ECF No. 14-7.) 

Under Federal Rule of Evidence 201 (“Fed. R. Evid.”), a court may take judicial notice of matters which are 

“not subject to reasonable dispute in that it is either (1) generally known within the territorial jurisdiction of 

the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy 

cannot reasonably be questioned.” Fed. R. Evid. 201(b); Lee v. City of Los Angeles, 250 F3d 668, 688 (9th 

Cir. 2001). A court may take judicial notice of matters of public record. Lee, 250 F.3d at 688. 

Accordingly, Defendant’s Request for Judicial Notice is GRANTED. 

3

 Because oral argument was not of material assistance, the Court ordered this matter submitted 

on the briefing. E.D. Cal. Local Rule 230(g). 

4

 The factual assertions in this section are taken from Plaintiffs’ First Amended Complaint 

(“Compl.”) (ECF No. 14.) For the purposes of this Motion, the Court accepts Plaintiffs’ facts as true and 

makes all inferences in the light most favorable to Plaintiffs. 

5

 In the FAC, the Williamsons attempt to clarify their standing by pointing to Section II.1.d. of the 

Policy which provides that if designated as “[a]n organization other than a partnership, joint venture or 

limited liability company, you are an insured. Your ‘executive officers’ and directors are insureds, but only

with respect to their duties as your officers or directors. Your stockholders are also insureds, but only with 

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In the Policy, Defendant promised to pay sums Aquarius became legally obligated 

to pay, including damages and attorneys’ fees due to property damage or loss of use of 

tangible property that is not physically injured, caused by an “occurrence,” which is 

defined as an “accident.” Prior to issuing the Policy, and thereafter, Defendant 

represented to Plaintiffs that the Policy would cover all claims against them arising out of 

their well drilling and well testing business. 

In late May 2007, Mount Shasta Title ordered a well test from Aquarius on 

property in escrow located at 4105 Anderson Grade Road. Aquarius tested the well on 

May 31, 2007. Aquarius reported the findings and results of the test to Mount Shasta 

Title on June 5, 2007, but did not express opinions on the condition of the well on the 

subject property. At some point after the well was tested by Aquarius, non-parties to this 

action, Laurie and Robert Manley (“ the Manleys”) purchased the property. 

On November 16, 2011, the Manleys filed an amended complaint in state court 

against Aquarius. In the complaint, the Manleys alleged Aquarius was negligent in 

testing the well on the property, resulting in inaccurate information which was reported to 

the title company. The Manleys alleged that they relied on Aquarius’ report to the title 

company regarding the well on the property and purchased the property without testing 

the well further. In the ninth cause of action, the Manleys alleged that Aquarius was 

negligent when it failed to “conduct a thorough test and to disclose all material facts 

regarding the ‘well,’ including the fact it was not a water well and that it did not produce 

12+ gallons of water per minute.” (ECF No. 14-7 at 9 ¶ 75.) The Manleys alleged that 

when the well stopped working in September 2009, it constituted interference with their 

use of the property. 

After the Manleys’ suit was filed in November 2011, Aquarius promptly notified 

Defendant of the lawsuit and tendered defense of the lawsuit. 

 respect to their liability as stockholders.” (ECF No. 14-12 at 1-2.) (emphasis added). The fact remains 

that the Williamsons were not named defendants in the underlying action by the Manleys and were not 

sued in their capacities as officers or directors of Aquarius. Thus, whether the Williamsons have standing 

is still unclear. 

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In December 2011, Defendant advised Aquarius that it would have to conduct a 

coverage investigation before responding to the tender of defense. Consequently, 

Aquarius retained Martin Andreas as counsel to protect its rights and on December 21, 

2011, Mr. Andreas filed an answer to the Manleys’ complaint. 

In a letter dated January 16, 2012, Defendant rejected Plaintiffs’ tender and 

declined to defend them against the Manley action, claiming that the Policy did not cover 

the matters alleged in the lawsuit. On January 19, 2012, Defendant sent Aquarius a 

Notice of Nonrenewal that the Policy was going to be terminated “due to loss activity” on 

March 26, 2012. In response, on January 23, 2012, Aquarius asked Defendant to 

reconsider its denial, which was consequently denied on February 15, 2012. 

Plaintiffs allege that a November 22, 2011 “Loss Notice Report” to Defendant 

described Aquarius’ loss as “being sued for negligence (sic) and fraud,” which was 

included in Defendant’s Analysis Worksheets prepared on April 25, 2012, when it closed 

its claim file after Plaintiffs filed a complaint in this Court. 

Plaintiffs further allege that in late 2009, a longtime employee of Aquarius 

systematically embezzled Aquarius’ funds and failed to pay insurance premiums or 

payroll taxes. The Williamsons confronted the employee in May 2011, who 

subsequently pleaded guilty to several felonies and is serving time. Plaintiffs reported 

the embezzlement to Defendant’s agent and were advised that the Policy did not cover 

the loss. As a result of the embezzlement, Aquarius claimed it lacked resources to 

defend itself against the allegations made in the Manleys’ complaint. On June 5, 2012, 

Aquarius reached a settlement agreement with the Manleys, under which it agreed to 

pay the Manleys $15,000.00 to dismiss the complaint, of which $7,500.00 was to be paid 

from the recovery of attorney’s fees and costs from this present case. 

As stated above, on April 12, 2012, Plaintiffs filed a complaint in this Court on the 

basis of diversity jurisdiction. (ECF No. 1.) Defendant filed a Motion to Dismiss on 

May 11, 2012 (ECF No. 6.) The Court granted Defendant’s Motion to Dismiss with leave 

to amend on July 16, 2012. (ECF No. 13.) 

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Plaintiffs filed a First Amended Complaint (“FAC”) on the same bases as the original 

complaint on August 2, 2012. (ECF No. 14.) Plaintiffs generally allege that Defendant 

was obligated to defend Aquarius in the Manley lawsuit under the Policy because the 

Manleys’ negligence claim against Aquarius sufficiently stated an “occurrence,” 

triggering Defendant’s duty to defend. More specifically, Plaintiffs raise the following 

state law claims: (1) breach of contract; (2) breach of covenant of good faith; (3) 

estoppel; and (4) intentional and negligent infliction of emotional distress. Plaintiffs seek 

various damages, as well as attorney fees and costs, and a determination that 

Defendant is estopped from denying coverage. 

STANDARD 

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, 555 (2007) (internal citations and quotations omitted). Though “a 

complaint attacked by a Rule 12(b)(6) motion to dismiss does not require 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. (internal citations and quotations omitted). A court is 

not required to accept as true a “legal conclusion couched as a factual allegation.” 

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 555). 

“Factual allegations must be enough to raise a right to relief above the speculative level.” 

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Twombly, 550 U.S. at 555 (citing 5 Charles Alan Wright & Arthur R. Miller, Federal 

Practice and Procedure § 1216, pp. 235-36 (3d ed. 2004) (stating that 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 and quotations 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 

Iqbal, 556 U.S. at 677-79. If the “plaintiffs . . . have not nudged their claims across the 

line from conceivable to plausible, their complaint must be dismissed.” Twombly, 

550 U.S. at 570; Iqbal, 556 U.S. at 680. 

A court granting a motion to dismiss a complaint must then decide whether to 

grant leave to amend. Rule 15(a) empowers the court to freely grant leave to amend 

when there is no “undue delay, bad faith or dilatory motive on the part of the movant, . . . 

undue prejudice to the opposing party by virtue of allowance of the amendment, [or] 

futility of the amendment . . . .” Foman v. Davis, 371 U.S. 178, 182 (1962). Dismissal 

without leave to amend is proper only if it is clear that “the complaint could not be saved 

by any amendment.” Intri-Plex Techs. v. Crest Grp., Inc., 499 F.3d 1048, 1056 (9th Cir. 

2007) (citing In re Daou Sys., Inc., 411 F.3d 1006, 1013 (9th Cir. 2005); Ascon Props., 

Inc. v. Mobil Oil Co., 866 F.2d 1149, 1160 (9th Cir. 1989) (“Leave need not be granted 

where the amendment of the complaint . . . constitutes an exercise in futility . . . .”)). 

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ANALYSIS 

A. Breach of Contract 

For their first cause of action, Plaintiffs claim that Defendant breached its express 

obligations under the Policy by refusing to defend Aquarius against the Manleys’ 

complaint. (ECF No. 14 at 7.) Plaintiffs argue that the negligence claim in the Manleys’ 

complaint against Aquarius based on inadequate well testing which resulted in the loss 

of use of the well constituted an “occurrence,” triggering Defendant’s duty to defend 

because Aquarius did not intend for the unintended consequences of the well testing. 

(ECF No. 16 at 13.) 

In response, Defendant asserts that the liability coverage under the Policy issued 

to Aquarius only applied to property damage resulting from an “occurrence,” which 

means an “accident”. Defendant reasons that because Aquarius’ well testing was 

intentional, it does not qualify as an “accident.” (ECF No. 15 at 12-13.) Defendant 

further argues that even if Aquarius’ well report contained inaccurate information, this still 

does not constitute an “accident,” triggering Defendant’s duty to defend. (Id. at 15.) 

Defendant maintains that all of Plaintiffs’ claims fail because Defendant did not have a 

duty to defend as a matter of law. (Id. at 16.) 

Under California law, an insurer “must defend a suit which potentially seeks 

damages within the coverage of the policy.” Fire Ins. Exch. v. Super. Ct., 

181 Cal. App. 4th 388, 391 (2010) (quoting Gray v. Zurich Ins. Co., 65 Cal. 2d 263, 275 

(1966)). An insurer does not have a duty to defend if “the third party complaint can by 

no conceivable theory raise a single issue which could bring it within the policy 

coverage.” Gray, 65 Cal. 2d at 275 n.15. To prevail, “the insured need only show that 

the underlying claim may fall within policy coverage; the insurer must prove it cannot.” 

Lyons v. Fire Ins. Exch., 161 Cal. App. 4th 880, 885 (2008) (quoting Montrose Chem. 

Corp. v. Super. Ct., 6 Cal. 4th 287, 300 (1993)) (emphasis in original). 

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Further, “any doubt as to whether the facts give rise to a duty to defend is 

resolved in the insured’s favor. Even a single claim that does not predominate, but for 

which there is potential coverage, will trigger the insurer’s duty to defend.” Fire Ins. 

Exch., 181 Cal. App. 4th at 392 (citing Montrose, 6 Cal. 4th at 299-300). When a policy 

is ambiguous, an insurer has a duty to defend if “the insured would reasonably expect 

the insurer to defend him or her against the suit based on the nature and kind of risk 

covered by the policy.” Foster-Gardner, Inc. v. Nat’l Union Fire Ins. Co., 18 Cal. 4th 857, 

869 (1998). However, when there is no ambiguity or uncertainty as to the policy, the 

insured cannot reasonably expect a defense. Lyons, 161 Cal. App. 4th at 885 (citing 

Ulrich v. State Farm Fire & Cas. Co., 109 Cal. App. 4th 598, 622 (2003)). 

In determining whether there is a duty to defend, the Court must compare the 

allegations of the complaint and the terms of the policy. Scottsdale Ins. Co. v. MV 

Transp., 36 Cal. 4th 643, 654 (2005) (citing Montrose, 6 Cal. 4th at 295). The 

interpretation of an insurance policy is a question of law. Standard Fire Ins. Co. v. 

Spectrum Cmty. Ass’n, 141 Cal. App. 4th 1117, 1124 (2006). 

In the present case, the terms of Defendant’s policy provide: 

COVERAGE A BODILY INJURY AND PROPERTY DAMAGE LIABILITY 

1. Insuring Agreement. 

a. We will pay those sums that the insured becomes legally obligated 

to pay as damages because of “bodily injury” or “property damage” 

to which this insurance applies. We will have the right and duty to 

defend the insured against any “suit” seeking those damages. 

However, we will have no duty to defend the insured against any 

“suit” seeking damages for “bodily injury” or “property damage” to 

which this insurance does not apply. We may, at our discretion, 

investigate any “occurrence” and settle any claim or “suit” that may 

result. . . . 

b. This insurance applies to “bodily injury” and “property damage” only 

if: 

(1) The “bodily injury” or “property damage” is caused by an 

“occurrence” that takes place in the “coverage territory”; 

(Id. at 8-9; see also ECF No. 14-11 at 3) (emphasis added). Section V.13 of the Policy 

defines “occurrence” as “an accident.” (ECF No. 14-12 at 7.) 

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California courts interpret “accident” to mean “an unintentional, unexpected, 

chance occurrence.” Fire Ins. Exch., 181 Cal. App. 4th at 392 (citing St. Paul Fire & 

Marine Ins. Co. v. Super. Ct., 161 Cal. App. 3d 1199, 1202 (1984)). It is also well 

established that “accident” “refers to the nature of the act giving rise to liability; not the 

insured’s intent to cause harm.” Id. at 393 (citing Collin v. Am. Empire Ins. Co., 21 Cal. 

App. 4th 787, 810 (1994)). Thus, where an insured intended all of the acts resulting in 

harm, even if the insured did not intend to cause injury, the event does not constitute an 

“accident” for insurance coverage purposes. Ray v. Valley Forge Ins. Co., 77 Cal. App. 

4th 1039, 1046 (citing Merced Mut. Ins. Co. v. Mendez, 213 Cal. App. 3d 41, 50 (1989)) 

(emphasis added). There is no accident “when the insured performs a deliberate act 

unless some additional, unexpected, independent, and unforeseen happening occurs 

that produces the damage.” Merced Mut. Ins. Co., 213 Cal. App. 3d at 50. 

Here, Plaintiffs’ argument in the FAC is essentially the same as it was in the 

original complaint. Plaintiffs still maintain that because Aquarius did not intend the 

results of the well test to be inaccurate and, thus, did not intend for the loss of property 

use, the resulting harm to the Manleys constituted an “occurrence” requiring Defendant 

to defend Plaintiffs in the underlying lawsuit. (ECF No. 16 at 14.) This Court found 

Plaintiffs’ argument to be unpersuasive in its previous order granting Defendant’s 

motion to dismiss. (ECF No. 13 at 14) (“Even if Plaintiffs’ alleged errors were the result 

of simple negligence, the acts of testing and reporting the results of those tests were still 

deliberate and willful acts and the Manleys’ reliance was foreseeable: there was no 

‘accident’ or otherwise unexpected, unusual, and unforeseen result that accrued as the 

result of Aquarius’s tests and report.”) 

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The only changes in the FAC include: the allegation that with the exception of a 

property loss claim and a claim for employee theft that was denied, Plaintiffs have not 

submitted a claim until the present matter; an attempt to clarify the Williamsons’ 

standing; a recharacterization of one of the claims from the Manleys’ complaint serving 

as the main basis for Plaintiffs’ claims; and an allegation that Aquarius was embezzled 

by a former employee which left Aquarius without the ability to pay for an effective 

defense against the Manleys’ complaint. The FAC also includes attachments as 

exhibits of the civil cover sheet; Defendant’s January 16, 2012 declination letter; the 

notice of non-renewal; Plaintiffs’ request for reconsideration; Defendant’s February 15, 

2012 declination letter; a copy of Aquarius’ Well Report; the November 16, 2011, first 

amended state court complaint by the Manleys against Aquarius; Aquarius’ answer; 

Defendant’s Loss Notice Report dated November 23, 2011; a copy of the Settlement 

Agreement between the Manleys and Aquarius; and a copy of the Policy. 

However, these additions still fail to allege any potential accident or occurrence 

such that Defendant would have a duty to defend under the Policy. In the FAC, 

Plaintiffs contend that because the well report comprised of “objective test results,” and 

because they did not “report or express opinions on the condition of the well,” the 

Manleys’ loss of use property damages were unintended consequences constituting an 

“accident.” (ECF No. 16 at 8.) Plaintiffs therefore claim that this triggered a duty to 

defend on Defendant’s part as to the resulting negligence claim. (Id.) In making this 

distinction, Plaintiffs attempt to distinguish their facts from Ray v. Valley Forge Ins. Co., 

77 Cal. App. 4th 1039 (1999). While Plaintiffs attempted to do this in their original 

complaint, this Court rejected this distinction, finding that because “Aquarius’s acts were 

deliberate, there was no accident.” (ECF No. 13 at 14-15.) 

Plaintiffs now endeavour to distinguish Ray on the ground that in that case, Ray 

gave subjective advice regarding re-roofing materials, which caused harm to the 

plaintiff. 77 Cal. App. 4th at 1043. 

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In the present case, on the other hand, Plaintiffs allege that they gave an “objective 

physical test of tangible property – with an objective empirical test that results in 

objective information.” (ECF No. 16 at 13.) Plaintiffs argue that unlike Ray (who “did 

nothing physical or objective” and “merely gave advice”), Plaintiffs provided objective 

data. (ECF No. 16 at 13.) Even though that data ultimately resulted in inaccurate 

information that caused loss-of-use damages when the well unexpectedly stopped 

producing, Plaintiffs contend this unintended consequence was nonetheless an 

occurrence within the meaning of the Policy because Aquarius did not intend for the test 

to give inaccurate information. (ECF No. 16 at 13.) (emphasis added). 

The Court finds this distinction to be meritless. California courts have stated 

“accident” refers to the nature of the insured’s conduct, not his state of mind or to the 

consequences of the conduct. Collin, 21 Cal. App. 4th at 804; Fire Ins. Exch., 181 Cal. 

App. 4th at 395. Thus, whether Aquarius’ well testing was done negligently or not, 

regardless of the unintended consequences, “the insured’s conduct alleged to have 

given rise to claimant’s injuries is necessarily non-accidental, not because any ‘harm’ 

was intended, but simply because the conduct could not be engaged in by ‘accident’.” 

Quan v. Truck Ins. Exch., 67 Cal. App. 4th 583, 596 (1998). Plaintiffs could not have 

engaged in the well testing by “accident.” Further, in Ray, the court found that it was 

“immaterial that Ray disclaimed knowledge about insulation and did not proffer advice 

on it to Association.” 77 Cal. App. 4th at 1048-49. Similarly, here, the Court finds that 

whether Plaintiffs were aware that the results of the well report were inaccurate or not is 

immaterial in determining whether Defendant had a duty to defend. 

Thus, as this Court previously found, Aquarius’ act in testing the well was 

intentional, and whether Aquarius intended harm or not in preparing the report with false 

information is irrelevant to claim that the resulting harm was an “occurrence” within the 

Policy’s coverage. Where there is no possibility of coverage, as is the case here, there 

is no duty to defend. Miller v. Western Gen. Agency, Inc., 41 Cal. App. 4th 1144, 1152 

(1996). 

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Accordingly, there was no duty to defend and therefore, Aquarius’ derivative claims for 

breach of the implied covenant of good faith and fair dealing, estoppel, as well as the 

emotional distress claims, all fail as a matter of law. 

 

CONCLUSION 

As a matter of law, and for the reasons set forth above, Defendant’s Motion to 

Dismiss Plaintiffs’ First Amended Complaint is GRANTED. Because the Court believes 

that the deficiencies of Plaintiffs’ complaint cannot be cured through further amendment, 

no leave to amend will be accorded. The Clerk of this Court is accordingly directed to 

close the file. 

 IT IS SO ORDERED. 

Dated: December 4, 2012 

__________________________________ 

MORRISON C. ENGLAND, JR 

UNITED STATES DISTRICT JUDGE 

DEAC_Signature-END: 

c4d6b0d3 

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