PPG Industries Inc. v. Transamerica Ins. Co.

Decision Date26 September 1996
Docket NumberNo. B097260,B097260
Citation56 Cal.Rptr.2d 889,49 Cal.App.4th 1120
CourtCalifornia Court of Appeals Court of Appeals
PartiesPreviously published at 49 Cal.App.4th 1120 49 Cal.App.4th 1120, 65 USLW 2273, 96 Cal. Daily Op. Serv. 7254, 96 Daily Journal D.A.R. 11,839 PPG INDUSTRIES, INC., Plaintiff and Appellant, v. TRANSAMERICA INSURANCE COMPANY, Defendant and Respondent.

Troop, Meisinger, Steuber & Pasich, Kirk A. Pasich and Lori M. Yankelevits, Los Angeles, for Plaintiff and Appellant.

Haines & Lea, John R. Brydon, James G. Boedecker, San Francisco and James E. Gibbons, Long Beach, for Defendant and Respondent.

GRIGNON, Acting Presiding Justice.

Plaintiff and appellant PPG Industries, Inc. appeals from the summary judgment entered in favor of defendant and respondent Transamerica Insurance Company in this bad faith insurance action for refusal to reasonably settle a third party action. The sole issue on appeal is whether consequential damages for breach of an insurer's duty to reasonably settle a third party action can include punitive damages imposed

against the insured in the third party action. We conclude that punitive damages awarded against an insured in a third party action cannot be passed on to the insurer as consequential damages for breach of the duty to reasonably settle. We therefore affirm.

FACTS AND PROCEDURAL BACKGROUND

PPG is the successor in interest to Solaglas, California, Inc., having purchased its stock in 1987. Solaglas was in the business of installing replacement windshields. Solaglas, doing business in Colorado, had installed a replacement windshield in a truck subsequently driven by George Joseph Miller during a collision in Colorado. The windshield popped out and Miller was ejected through the opening and instantly rendered a quadriplegic.

Miller brought a lawsuit in Colorado against Solaglas, seeking compensatory and punitive damages. Two insurance policies issued by Transamerica with combined coverage of $1.5 million per occurrence covered Solaglas for the relevant period. Solaglas was also insured under a $9 million excess liability policy issued by Industrial Indemnity Company. Solaglas gave timely notice of the Miller action to Transamerica. Transamerica agreed to defend Solaglas in the Miller lawsuit, under a reservation of rights, and appointed independent counsel to conduct Solaglas's defense.

Settlement negotiations in the Miller lawsuit were unsuccessful. Miller offered to settle the action for $1.5 million, the policy limits. Independent counsel recommended that Transamerica offer $750,000 to settle the action. Transamerica offered only $250,000. In 1986, the Miller lawsuit was tried to a jury and resulted in a verdict in favor of Solaglas. The judgment was reversed on appeal. After the first trial, Miller reduced his settlement demand to $1 million, and Transamerica reduced its offer to $100,000. Solaglas consistently demanded that Transamerica settle within policy limits.

A second jury trial was held. This trial resulted in a plaintiff's verdict. Judgment was entered against Solaglas and PPG awarding Miller $5.1 million compensatory damages and $1 million punitive damages. On October 7, 1993, the judgment was affirmed on appeal. (Miller v. Solaglas California, Inc. (Colo.App.1993) 870 P.2d 559, cert. den. (1994).) The basis of the award of punitive damages was Solaglas's installation of the replacement windshield without a urethane seal. Solaglas had failed to use urethane seals as a matter of policy, despite a General Motors manual and industry publications, conventions and safety regulations discussing and requiring the use of urethane seals. Solaglas charged 2.8 hours of labor for installation of a windshield, even though the installation took only 30 minutes if urethane seals were not used.

Transamerica paid its policy limits of $1.5 million and an additional $1,277,094.88 as costs and interest on the Miller judgment. Industrial Indemnity paid the remainder of the compensatory damages, leaving PPG to pay the punitive damages.

On June 27, 1994, PPG brought this action against Transamerica for breach of the covenant of good faith and fair dealing. PPG alleged that Transamerica had failed to effectuate a reasonable settlement of the Miller lawsuit and was therefore liable for the punitive damage award PPG was required to pay.

On October 28, 1994, Transamerica filed its motion for summary judgment on the ground that it had no obligation to indemnify PPG for any punitive damages awarded in the Miller action. Transamerica based its motion on the single legal issue that an insurer is not obligated to indemnify its insured for punitive damages awarded after the insurer unreasonably failed to settle the case within policy limits. On September 27, 1995, the trial court entered summary judgment in favor of Transamerica. PPG filed a timely notice of appeal.

DISCUSSION

Standard of Review

We review orders granting or denying a summary judgment motion de novo. (FSR Brokerage, Inc. v. Superior Court (1995) 35 Cal.App.4th 69, 72, 41 Cal.Rptr.2d 404; Union Bank v. Superior Court (1995)

                31 Cal.App.4th 573, 579, 37 Cal.Rptr.2d 653.)   We exercise "an independent assessment of the correctness of the trial court's ruling, applying the same legal standard as the trial court...."  (Iverson v. Muroc Unified School Dist.  (1995) 32 Cal.App.4th 218, 222, 38 Cal.Rptr.2d 35;  Union Bank v. Superior Court, supra, 31 Cal.App.4th at p. 579, 37 Cal.Rptr.2d 653.)
                
Punitive Damages

Civil Code section 3294 provides for an award of punitive damages "where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice." "Malice" is defined as "conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others." (Civ.Code, § 3294, subd. (c)(1).) In a products liability case, punitive damages may be assessed for intentionally engaging in conduct which exposes a user of the product to a serious potential danger known to the defendant, when the defendant does so in order to advance its pecuniary interest. Punitive damages are assessed in that situation because the defendant has acted with a "conscious disregard" for the safety of the users of its product. (Ford Motor Co. v. Home Ins. Co. (1981) 116 Cal.App.3d 374, 381-382, 172 Cal.Rptr. 59.) Punitive damages may be imposed on a successor corporation for the acts of its predecessor justifying the imposition of punitive damages. (Marks v. Minnesota Mining & Manufacturing Co. (1986) 187 Cal.App.3d 1429, 1435, 232 Cal.Rptr. 594; Moe v. Transamerica Title Ins. Co. (1971) 21 Cal.App.3d 289, 303-305, 98 Cal.Rptr. 547.)

Indemnification for punitive damages is barred both by statute and public policy. (City Products Corp. v. Globe Indemnity Co. (1979) 88 Cal.App.3d 31, 35, 151 Cal.Rptr. 494.) Insurance Code section 533 provides that an insurer is not liable for damages caused by an intentional act of its insured. 1 When punitive damages are imposed for intentional acts, Insurance Code section 533 therefore prohibits indemnification. However, even when the punitive damages are not imposed for an intentional act, indemnification is still prohibited by public policy. (Peterson v. Superior Court (1982) 31 Cal.3d 147, 158-159, 181 Cal.Rptr. 784, 642 P.2d 1305; Ford Motor Co. v. Home Ins. Co., supra, 116 Cal.App.3d at pp. 382-383, 172 Cal.Rptr. 59.) "[T]he policy of this state that punitive damages may be recovered only 'for the sake of example and by way of punishing the defendant' precludes passing them on to an insurer." (City Products Corp. v. Globe Indemnity Co., supra, 88 Cal.App.3d at p. 35, 151 Cal.Rptr. 494.) Because the purpose of punitive damages is to punish the defendant for conduct involving fraud, oppression or malice, public policy would be frustrated by allowing the wrongdoer to pass these damages on to its insurer. (Id. at p. 42, 151 Cal.Rptr. 494.) Public policy would likewise be frustrated by indemnification for punitive damages assessed against a successor corporation for the wrongful conduct of its predecessor. 2 (Certain Underwriters at Lloyd's v. Pacific Southwest Airlines (C.D.Cal.1992) 786 F.Supp. 867, 871.) Indeed, were indemnification allowed when a successor corporation is liable for punitive damages due to the conduct of its predecessor, public policy could be easily frustrated by a restructuring of any corporation facing the imposition of punitive damages.

In some jurisdictions, insurance coverage for punitive damages has been found not to be violative of public policy. In those states, unlike California, punitive damages are allowed with respect to conduct which is merely grossly negligent, without a requirement In this case, we consider whether California public policy would be violated by indemnification of the punitive damages imposed against PPG in the Miller action. PPG contends California public policy would not be violated by indemnification of punitive damages in this case because the damages were imposed for conduct of its predecessor, not PPG, and in Colorado, not California. We are not persuaded that the public policy interests are somehow different because PPG is Solaglas's successor in interest, rather than the wrongdoer itself. PPG does not contend that it acquired Solaglas without notice of the pending litigation or without acceptance of the liability which might be imposed in that action. Instead, PPG seeks to recover in this action by standing in Solaglas's shoes as Transamerica's insured. PPG cannot accept the benefits of this arrangement without the liabilities as well.

                of fraud, malice or oppression.  (City Products Corp. v. Globe Indemnity Co., supra, 88 Cal.App.3d at p. 41, 151 Cal.Rptr. 494.)   When an insured has suffered a judgment imposing such punitive damages, California public
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