PPG Industries, Inc. v. Transamerica Insurance

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.

*313 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…

In affirming the judgment of the Court of Appeal, which affirmed the judgment of the superior court, the majority favor Transamerica Insurance Company, an insurer, over PPG Industries, Inc., its insured, in a dispute about liability insurance. The result, however, is to favor all insurers over all their insureds. I cannot join such an opinion.

I

Under a liability insurance policy, which is manifestly a contract, an insurer makes promises, and its insured pays premiums, the one in consideration for the other, against the risk of loss. (See, e.g., Buss v. Superior Court (1997) 16 Cal.4th 35, 45 [ 65 Cal.Rptr.2d 366 , 939 P.2d 766 ].)

*320 Under the terms of such a policy, the insurer has a duty to defend its insured against damages for a covered claim by a victim of the insured. (See, e.g., Buss v. Superior Court, supra, 16 Cal.4th at pp. 45-46.) The insurer also has a duty to indemnify its insured, to a specified limit, for those sums that its insured becomes legally obligated to pay its victim as damages for a covered claim. (See, e.g., id. at p. 45.) Such sums, of course, include damages to compensate the insured’s victim—namely, compensatory damages. But they do not include…

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…