In re American Bankers Insurance Company of Florida

Background

The action consisted of two consolidated cases involving the City of Walnut Creek and multiple insurers. The City had settled three earlier lawsuits alleging that it failed to develop and maintain storm drains, causing flooding and damage to plaintiffs’ real property. The City alleged that insurance policies issued between 1974 and 1986 required the insurers to indemnify it for damages and fees connected to those lawsuits.

As relevant to this order, the City alleged that Insurance Company of the State of Pennsylvania, also called ICSOP, or its predecessors insured the City under one or more umbrella-liability policies. The City specifically identified ICSOP policy number 4177-8136, covering July 1, 1977, through July 1, 1978. According to the City, the policy required ICSOP to pay amounts the City became legally obligated to pay for property damage and required ICSOP to defend related claims. The City alleged that, after receiving notice of the earlier lawsuits on or about May 8, 2017, ICSOP refused to defend or indemnify it and failed to reimburse its defense and settlement costs.

The City asserted claims for declaratory relief concerning indemnification, breach of contract for failure to indemnify, breach of contract for refusing to accept a settlement demand, and breach of the implied covenant of good faith and fair dealing. Pennsylvania moved under Federal Rule of Civil Procedure 12(b)(6) to dismiss the first, second, and third causes of action. In the alternative, it moved under Rule 12(e) for a more definite statement concerning the second and third causes of action.

Analysis

A Rule 12(b)(6) motion tests whether a complaint states a legally recognized claim supported by enough factual allegations to make relief plausible. A Rule 12(e) motion seeks clarification when a pleading is so vague or ambiguous that the opposing party cannot reasonably prepare a response.

Regarding the declaratory-relief claim, Pennsylvania argued that there was no present controversy because the underlying lawsuits had already been settled and that the claim duplicated the breach-of-contract claim. The court rejected both arguments. It held that the dispute over the insurer’s duties under the policy, including the denial of coverage, was an actual controversy. It also held that the Declaratory Judgment Act allows a party to seek declaratory relief whether or not other relief is available or requested, so duplication did not require dismissal at this stage.

Regarding the contract claims, the court explained that California law requires allegations of a contract, the plaintiff’s performance or excuse for nonperformance, the defendant’s breach, and damages. The City did not need to quote the policy word for word, but it had to describe its terms sufficiently to provide notice of the claims. The court found that the City met that requirement by identifying the policy, describing the alleged obligation to pay property-damage losses and defend claims, identifying the alleged breach, and alleging defense and settlement expenses as damages.

Pennsylvania also argued that the City needed to identify the primary insurance policies underlying the excess ICSOP policy. The court noted that Pennsylvania cited no authority requiring that level of detail at the pleading stage. Whether the excess policy was triggered by damages exceeding the underlying coverage was an issue for a later dispositive motion, not a basis for dismissal at this stage.

Disposition

The court denied Pennsylvania’s motion to dismiss the City’s first cause of action for declaratory relief. It denied Pennsylvania’s motion to dismiss the second and third causes of action for breach of contract. It also denied Pennsylvania’s alternative motion for a more definite statement. The court therefore allowed those claims to continue, without deciding whether the City would ultimately prove coverage, indemnification, or breach.