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contractlawsuittortdamagesliabilitytrialpunitive damagesgood faithjury trial
lawsuitsettlementplaintiffdamagesliabilityindemnitytrialsummary judgmentcorporationpunitive damagesgood faith

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PPG Industries, Inc. v. Transamerica Ins. Co., 20 Cal.4th 310, 975 P.2d 652, 84 Cal.Rptr.2d 455, 1999 Daily Journal D.A.R. 4365

Facts

PPG Industries, Inc., as the successor to Solaglas California, Inc., faced a lawsuit from George Miller after a truck accident caused by a windshield installation error. Solaglas had liability coverage from Transamerica Insurance Company, which refused to settle the case within policy limits. After a jury trial, Solaglas was found liable for $6.1 million, including $1 million in punitive damages. PPG later sued Transamerica, claiming the insurer's failure to settle led to the punitive damages.

Plaintiff PPG Industries, Inc. (PPG) is the successor in interest to Solaglas California, Inc. (Solaglas). Solaglas was a distributor and installer of replacement windshields for cars and trucks. On July 17, 1982, in Colorado, George Miller was driving a truck manufactured by General Motors Corporation (GMC) when another vehicle collided with the left rear of the truck, causing it to jump a curb and strike a metal light pole. The truck's windshield, which had been installed by a Solaglas facility in Colorado, “popped out” and Miller was ejected through the opening. The resulting injuries rendered Miller a quadriplegic.

Issue

Whether the insurer's failure to settle the underlying lawsuit within policy limits was the proximate cause of the punitive damages awarded against the insured.

The Supreme Court, Kennard, J., held that insurer's breach of covenant of good faith and fair dealing in failing to accept settlement offer within policy limits was not proximate cause of punitive damage award, which resulted from insured's own intentional misconduct in failing to follow industry safety standards in installing windshields, and thus punitive damages were not recoverable from insurer.

Rule

California law implies a covenant of good faith and fair dealing in insurance contracts, obligating insurers to make reasonable efforts to settle claims. Breach of this covenant can lead to tort claims for damages that are proximately caused by the breach.

In each policy of liability insurance, California law implies a covenant of good faith and fair dealing. This implied covenant obligates the insurance company, among other things, to make reasonable efforts to settle a third party's lawsuit against the insured.

Analysis

The court determined that while the insurer's failure to settle was a cause in fact of the punitive damages, it was not the proximate cause. The punitive damages were awarded due to the insured's own egregious misconduct in failing to adhere to safety standards, which was independent of the insurer's actions. The court emphasized that allowing the insured to shift the responsibility for punitive damages to the insurer would violate public policy.

Although the insurance company's alleged negligent failure to settle the third party lawsuit was a cause in fact of the punitive damages awarded against the insured, it was not a proximate cause of those damages.

Conclusion

The California Supreme Court affirmed the lower court's decision, concluding that punitive damages could not be recovered from the insurer because the insured's own misconduct was the proximate cause of those damages.

We therefore conclude that the insured in this case cannot shift to the insurance company its responsibility for the punitive damages.

Who won?

Transamerica Insurance Company prevailed in the case because the court found that the insurer's actions did not proximately cause the punitive damages awarded against the insured.

The trial court granted summary judgment for Transamerica, relying on the well-established rule prohibiting indemnity coverage for punitive damages awarded against the insured.

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