Stonewall Surplus Lines Ins. Co. v. Johnson Controls, Inc.

• Decision Date: 24 March 1993
• Docket Number: No. D013420,D013420
• Citation: 17 Cal.Rptr.2d 713,14 Cal.App.4th 637
• Court: California Court of Appeals Court of Appeals
• Parties: STONEWALL SURPLUS LINES INSURANCE COMPANY et al., Plaintiffs and Respondents, v. JOHNSON CONTROLS, INC., Defendant and Appellant.

Page 713

17 Cal.Rptr.2d 713

14 Cal.App.4th 637

STONEWALL SURPLUS LINES INSURANCE COMPANY et al., Plaintiffs and Respondents, v. JOHNSON CONTROLS, INC., Defendant and Appellant.

No. D013420.

Court of Appeal, Fourth District, Division 1, California.

March 24, 1993.

Michael A. Stiegel, Arthur L. Klein, Arnstein & Lehr, Chicago, IL, Luce, Forward, Hamilton & Scripps, Richard R. Spirra and Mark W. Hansen, San Diego, for defendant and appellant.

Virginia R. Gilson, James E. Chodzko, Robert Scott Dreher and McInnis, Fitzgerald, Rees, Sharkey & McIntyre, San Diego, for plaintiffs and respondents.

BENKE, Acting Presiding Justice.

In this case a San Diego jury returned a verdict assessing $6.5 million in exemplary damages against a Wisconsin corporation. The corporation's liability insurers, residents of Connecticut, Alabama, Texas and Illinois, filed a declaratory relief action alleging they were not required to provide the corporation with any indemnity for the exemplary damages. The corporation answered the complaint, alleging Wisconsin law governed the policies and under Wisconsin law the insurers were liable for both compensatory and punitive damages.

On cross-motions for summary judgment the trial court agreed with the insurers and entered judgment in favor of the insurers. On appeal we affirm.

The parties agree that in California an insured may not seek indemnity from an insurer for exemplary damages. Because the defective battery which gave rise to the underlying claim was manufactured in California and caused injury in California to a California resident, California has an interest which supports application of this restriction on insurance coverage.

FACTUAL AND PROCEDURAL HISTORY

A. Jones Action

On June 3, 1986, a resident of San Diego, Gary Jones was assisting his neighbor Fred Hill "jump-start" Hill's car. While Jones was working on Hill's battery it exploded. Jones suffered brain damage and was blinded in one eye. As a result of his injuries Jones has experienced persistent seizures.

The battery in Hill's car was manufactured in Fullerton, California, by defendant and appellant Johnson Controls, Inc. (Johnson Controls). Hill purchased the battery from a Sears store in San Diego.

Jones and his wife Mona filed a complaint against Hill, Sears, and Johnson Controls in superior court in San Diego. Following trial, the jury returned a verdict which found Johnson Controls and Sears had been negligent and that their negligence caused Jones's injuries. The jury found Jones had not been negligent. The jury awarded Jones $2,905,000 in compensatory damages and his wife $325,000 in damages.

In addition, the jury found Johnson Controls had acted with malice, fraud or oppression. As we have previously noted, the jury found that $6.5 million was an appropriate amount of punitive damages to impose on Johnson Controls.

Judgment in the amount of $10,693,649.228 ¹ was entered against Johnson Controls.

B. These Proceedings

On March 17, 1989, shortly after the verdict in the Jones action was returned, plaintiffs and respondents Stonewall Surplus Lines Insurance Company (Stonewall), Constitution State Insurance Company (Constitution) and Republic Insurance Company (Republic) filed a declaratory relief action against Johnson Controls and the Joneses in superior court in San Diego. The insurers alleged they had provided excess liability insurance to Johnson Controls at the time Jones was injured. The insurers further alleged they were not required to indemnify Johnson Controls for the exemplary damages awarded because such indemnification was contrary to public policy and because they had not been given timely notice of the Joneses' claim.

After making an unsuccessful attempt to remove the case to district court and an unsuccessful attempt to have the case dismissed on forum non conveniens grounds, Johnson Controls filed an answer. As an affirmative defense Johnson Controls alleged the insurance policies issued by the excess insurers were governed by Wisconsin law and that, in any event, a judgment in the excess insurers' favor would be an unconstitutional impairment of Johnson Controls's contract rights and violate its right to due process of law.

The insurers moved for summary adjudication. They argued that, as alleged in their complaint, they are not liable for the punitive damages assessed against Johnson Controls. Johnson Controls filed a cross-motion for summary adjudication or, in the alternative, summary judgment. Johnson Controls, as alleged in its answer, argued the insurance contracts were governed by Wisconsin law which permits insurance companies to indemnify punitive damages awards.

The trial court agreed with the insurers and granted their motion and denied Johnson Controls's motion. Having found the insurers had no obligation to indemnify the punitive damage award and no other triable issue of material fact, the trial court entered judgment in favor of the insurers. Johnson Controls filed a timely notice of appeal. ²

ISSUES ON APPEAL

As it did below, Johnson Controls argues its rights under the insurance policies are governed by the law of Wisconsin, the state where its headquarters are located. Johnson Controls contends Wisconsin law is required by both conflict of laws principles and the United States Constitution. We reject these contentions and affirm the judgment.

DISCUSSION

I

We begin our analysis of Johnson Controls's conflict of laws argument by determining whether there is any conflict between the laws of California and Wisconsin. (Robert McMullan & Son, Inc. v. United States Fid. & Guar. Co. (1980) 103 Cal.App.3d 198, 202, 162 Cal.Rptr. 720.) As "succinctly described in Hurtado v. Superior Court (1974) 11 Cal.3d 574, 580 [114 Cal.Rptr. 106, 522 P.2d 666]: 'The fact that two states are involved does not in itself indicate that there is a 'conflict of laws' or 'choice of law' problem. There is obviously no problem where the laws of the two states are identical.' (Id., at p. 580 [114 Cal.Rptr. 106, 522 P.2d 666]; see also Beech Aircraft Corp. v. Superior Court (1976) 61 Cal.App.3d 501, 518 .)" (Robert McMullan & Son, Inc. v. United States Fid. & Guar. Co., supra, 103 Cal.App.3d at p. 202, 162 Cal.Rptr. 720.)

The parties agree that in California an insurer is not liable for any portion of a judgment which awards punitive damages. (City Products Corp. v. Globe Indemnity Co. (1979) 88 Cal.App.3d 31, 42, 151 Cal.Rptr. 494 (City Products ); see also Peterson v. Superior Court (1982) 31 Cal.3d 147, 156, 181 Cal.Rptr. 784, 642 P.2d 1305; State Farm Fire & Cas. Co. v. Superior Court (1987) 191 Cal.App.3d 74, 77, 236 Cal.Rptr. 216; California State Auto. Assn. Inter-Ins. Bureau v. Carter (1985) 164 Cal.App.3d 257, 262-263, 210 Cal.Rptr. 140; Ford Motor Co. v. Home Ins. Co. (1981) 116 Cal.App.3d 374, 379, 172 Cal.Rptr. 59; Annot., Insurance Coverage--Punitive Damages, 16 A.L.R.4th 11.) As explained in City Products, "the policy of this state with respect to punitive damages would be frustrated by permitting the party against whom they are awarded to pass on the liability to an insurance carrier. The objective is to impose such damages in an amount which will appropriately punish the defendant in view of 'the actual damages sustained,' 'the magnitude and flagrancy of the offense, the importance of the policy violated, and the wealth of the defendant.' [Citation.] Consideration of the wealth of the defendant would of course be pointless if such damages could be covered by insurance. The onus of the award would depend entirely upon the amount of insurance coverage and not upon the legally relevant factors. We conclude, therefore, that the public policy of this state prohibits insurance covering the punitive damages levied against plaintiff." (City Products, supra, 88 Cal.App.3d at p. 42, 151 Cal.Rptr. 494.) ³

The prohibition against insuring exemplary damages applies whether the conduct which gave rise to the award of punitive damages was intentional or committed in conscious disregard of the safety or rights of the plaintiff. (Peterson v. Superior Court, supra, 31 Cal.3d at pp. 158-159, 181 Cal.Rptr. 784, 642 P.2d 1305; Ford Motor Co. v. Home Ins. Co., supra, 116 Cal.App.3d at pp. 383-384, 172 Cal.Rptr. 59.)

The rule in Wisconsin is different. (See Brown v. Maxey (1985) 124 Wis.2d 426, 369 N.W.2d 677, 686-688.) In Brown v. Maxey a landlord was held liable for burns suffered by one of his tenants in a fire; in addition to compensatory damages the jury awarded $200,000 in punitive damages. The Supreme Court of Wisconsin held the jury could award punitive damages based on the landlord's reckless disregard of his tenant's safety. (Id. 369 N.W.2d at pp. 681-682; cf. Peterson v. Superior Court, supra, 31 Cal.3d at pp. 156, 160, 181 Cal.Rptr. 784, 642 P.2d 1305 [conscious disregard of safety of others will support punitive damages]; Civ.Code, § 3294, subd. (c)(1) [malice exists where defendant engages in "despicable conduct which is carried on by the defendant with a willful or conscious disregard of the rights or safety of others"].)

The Wisconsin court also held the landlord's insurer was required under the terms of its policy to pay both the compensatory and punitive portions of the judgment. (Brown v. Maxey, supra, 369 N.W.2d at pp. 686-688.) The court found that as defined in the policy "[t]he term 'damages' is sufficiently broad to cover liability for both compensatory and punitive damages. Punitive damages are not specifically excluded from the policy language." (Brown v. Maxey, supra, 369 N.W.2d at p. 686.) Although the court agreed the policy did not cover acts intended or expected from the insured's point of view, and that the landlord had acted outrageously, "we uncover no evidence that [the landlord's] conduct crosses the line to be classified as intentional." (Ibid.)

Unlike the court in City Products, the Wisconsin Supreme Court found that public policy did not prevent...