PPG Industries, Inc. v. Transamerica Ins. Co.

• Decision Date: 10 May 1999
• Docket Number: No. S056618,S056618
• Citation: 20 Cal.4th 310,975 P.2d 652,84 Cal.Rptr.2d 455
• Parties: , 975 P.2d 652 PPG INDUSTRIES, INC., Plaintiff and Appellant, v. TRANSAMERICA INSURANCE COMPANY, Defendant and Respondent
• Court: California Supreme Court

Page 455

84 Cal.Rptr.2d 455

20 Cal.4th 310, 975 P.2d 652

PPG INDUSTRIES, INC., Plaintiff and Appellant, v. TRANSAMERICA INSURANCE COMPANY, Defendant and Respondent.

No. S056618.

Supreme Court of California

May 10, 1999.

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

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

Musick, Peeler & Garrett, Harry W.R. Chamberlain II and Mary Catherine M. Bohen, Los Angeles, for Lawyers' Mutual Insurance Company as Amicus Curiae on behalf of Defendant and Respondent.

Kravit Gass & Weber, J. Ric Gass, Milwaukee, WI; Carroll, Burdick & McDonough and Bertrand LeBlanc II, San Francisco, for American Empire Surplus Lines Insurance Company as Amicus Curiae on behalf of Defendant and Respondent.

KENNARD, J.

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. If the insurer breaches the implied covenant by unreasonably refusing to settle the third party suit, the insured may sue the insurer in tort to recover damages proximately caused by the insurer's breach.

Here, a third party brought a personal injury action against the insured resulting in a judgment against the insured that included an award of punitive damages based on the insured's egregious misconduct. The insured then sued its insurance company to recover as compensatory damages the amount of the punitive damages, which the insured alleged were proximately caused by insurance company's unreasonable failure to settle the third party's lawsuit against the insured. 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. We therefore conclude that the insured in this case cannot shift to the insurance company its responsibility for the punitive damages.

I.

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.

Miller sued Solaglas in Colorado, seeking both compensatory and punitive damages. Solaglas tendered the defense to its liability carrier, Transamerica Insurance Company (Transamerica), which had issued policies totaling $1.5 million. Transamerica agreed to defend Solaglas, but it informed Solaglas that the insurance policies did not provide indemnity coverage for punitive damages.

Settlement efforts were unsuccessful, and a jury trial in Colorado resulted in a judgment for Solaglas, but this judgment was reversed on appeal. Miller then offered to settle for an amount within the limits of Solaglas's liability coverage. Transamerica turned down Solaglas's requests to accept the settlement offer. Thereafter, a second jury trial resulted in a judgment against Solaglas for $6.1 million ($5.1 million in compensatory damages and $1 million in punitive damages). Solaglas appealed.

With respect to the $1 million punitive damages, the Colorado Court of Appeal rejected Solaglas's contention that the evidence was insufficient to support the award. (Miller v. Solaglas California, Inc. (Colo.Ct.App.1993) 870 P.2d 559.) The court determined that "reasonable jurors could have found beyond a reasonable doubt that Solaglas' conduct in installing the windshield retention system created a substantial risk of harm to others and was purposefully performed with an awareness of the risk and in disregard of the consequences so as to constitute 'wanton and reckless conduct.' " (Id. at p. 569.) In making this determination, the court relied on evidence that Solaglas had adopted a standard practice of installing replacement windshields using silicone instead of urethane "despite a GMC manual requiring the use of urethane when replacing a windshield, despite a NAGS Calculator parts list and price guide indicating that urethane could be required in windshield installation, despite industry publications and conventions discussing the use of urethane, and despite industry safety standards requiring the use of urethane." (Ibid.) The court also noted that installing a windshield without a urethane seal would take only 30 minutes, yet Solaglas had instructed its stores to charge for 2.8 hours of labor for such installation. (Ibid.)

Transamerica paid the policy limits of $1.5 million plus $1,277,094.88 as costs and interest on the judgment against Solaglas in the Miller lawsuit. Industrial Indemnity Company, which had insured Solaglas for $9 million in excess liability coverage, paid the remaining $3.6 million in compensatory damages, leaving PPG, Solaglas's successor in interest, to pay the $1 million in punitive damages.

In June 1994, PPG sued Transamerica in Los Angeles, California, for breach of the covenant of good faith and fair dealing implied in each of Transamerica's policies. PPG alleged that Transamerica had breached the covenant by unreasonably refusing to settle the Miller lawsuit; PPG sought to recover from Transamerica as compensatory damages the $1 million it had been ordered to pay as punitive damages in the Miller lawsuit.

The trial court granted summary judgment for Transamerica, relying on the well-established rule prohibiting indemnity coverage for punitive damages awarded against the insured. The Court of Appeal affirmed the judgment. We granted PPG's petition for review.

II.

Implied in every contract is a covenant of good faith and fair dealing that neither party will injure the right of the other to receive the benefits of the agreement. (Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 658, 328 P.2d 198.) This covenant imposes a number of obligations upon insurance companies, including an obligation to accept a reasonable offer of settlement. (Murphy v. Allstate Ins. Co. (1976) 17 Cal.3d 937, 941, 132 Cal.Rptr. 424, 553 P.2d 584; Crisci v. Security Ins. Co. (1967) 66 Cal.2d 425, 430, 58 Cal.Rptr. 13, 426 P.2d 173.) An insurer's breach of the implied covenant of good faith and fair dealing "will provide the basis for an action in tort." (Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 684, 254 Cal.Rptr. 211, 765 P.2d 373.) Because breach of the implied covenant is actionable as a tort, the measure of damages for tort actions applies and the insurance company generally is liable for "any damages which are the proximate result of that breach." (Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910, 925, 148 Cal.Rptr. 389, 582 P.2d 980; accord, Civ.Code, § 3333; Brandt v. Superior Court (1985) 37 Cal.3d 813, 817, 210 Cal.Rptr. 211, 693 P.2d 796.)

Here, PPG contends it is entitled to recover from its insurance company any monetary award, including punitive damages, it became legally obligated to pay in the Miller lawsuit. According to PPG, settlement would have terminated that lawsuit, thus precluding any punitive damage liability, and therefore the insurer's failure to settle the lawsuit was a proximate cause of the award of punitive damages. Not so. As we shall explain, Transamerica's failure to settle the Miller lawsuit was a cause in fact but not a proximate cause of the award of punitive damages.

Proximate cause involves two elements. (Mitchell v. Gonzales (1991) 54 Cal.3d 1041, 1049 & fn. 4, 1 Cal.Rptr.2d 913, 819 P.2d 872.) One is cause in fact. An act is a cause in fact if it is a necessary antecedent of an event. (Prosser & Keeton on Torts (5th ed.1984) § 41, p. 265.) Here, there were at least two causes in fact of the insured's liability for punitive damages in the third party lawsuit: the insured's own intentional and egregious misconduct in installing the windshield on the truck, and the insurance company's alleged negligence in failing to settle the third party lawsuit, on the theory that settlement would not have exposed PPG to liability for punitive damages.

To simply say, however, that the defendant's conduct was a necessary antecedent of the injury does not resolve the question of whether the defendant should be liable. In the words of Prosser and Keeton: "[T]he consequences of an act go forward to eternity, and the causes of an event go back to the dawn of human events, and beyond. But any attempt to impose responsibility upon such a basis would result in infinite liability for all wrongful acts, and would 'set society on edge and fill the courts with endless litigation.' " (Prosser & Keeton on Torts, supra, § 41, at p. 264, quoting North v. Johnson (1894) 58 Minn. 242, 59 N.W. 1012.) Therefore, the law must impose limitations on liability other than simple causality. These additional limitations are related not only to the degree of connection between the conduct and the injury, but also with public policy. (Prosser & Keeton on Torts, supra, § 41, at p. 264.) As Justice Traynor observed, proximate cause "is ordinarily concerned, not with the fact of causation, but with the various considerations of policy that limit an actor's responsibility for the consequences of his conduct." (Mosley v. Arden Farms Co. (1945) 26 Cal.2d 213, 221, 157 P.2d 372 (conc. opn. of Traynor, J.).)

In this case, there are at least three policy considerations that strongly militate against allowing the insured, the...