In PPG Industries, Inc. v. Transamerica Insurance CO., the California Supreme Court held that an insurer may not indemnify its insured for a punitive damages judgment in a third party action. Even if the excess judgment is the result of the insurer's bad faith breach of its duty to settle a third party action on behalf of its insured, an insured may not recover if it seeks compensatory damages that include a punitive damages judgment. The California Supreme Court found that to conclude otherwise would violate California's long established public policy precluding indemnification of punitive damages. This Note examines the faulty reasoning in the California Supreme Court's decision. Part II briefly discusses relevant principles of insurance law. Part III outlines the facts underlying PPG Industries, Inc. v. Transamerica Insurance Co., including the initial Colorado lawsuit that evolved into the case ultimately presented to the California Supreme Court. Part IV explains the procedural history of the case, including the California Court of Appeal's opinion and PPG Industries, Inc.'s appeal to the California Supreme Court. Part V details the California Supreme Court's analysis and its focus on California's public policy against indemnification of punitive damages. Part VI discusses Justice Mosk's heated dissent and his opposition to what he viewed as the majority's apparent favoritism of insurers. Finally, Part VII criticizes the California Supreme Court for ignoring PPG Industries, Inc.'s allegations that it was entitled to recover consequential damages arising from Transamerica's bad faith failure to settle a third party claim, thereby setting a precedent that allows insurers to escape liability for their own tortious conduct.
Jennifer A. Emmaneel,
Hiding Behind Policy: Confusing Compensation With Indemnification, 30 Golden Gate U. L. Rev.