Opinion
CIV. NO. 1:15-00124 WBS SKO
11-17-2016
PAUL EVERT'S RV COUNTRY, INC.; PAUL EVERT; and CHARLES CURTIS, Plaintiffs, v. UNIVERSAL UNDERWRITERS INSURANCE COMPANY; and DOES 1-25, inclusive, Defendant. AND RELATED COUNTERCLAIMS.
ORDER RE: CROSS-MOTIONS FOR SUMMARY JUDGMENT
Plaintiffs Paul Evert's RV Country, Inc., Paul Evert, and Charles Curtis (collectively "Evert's RV") brought this action against defendants Universal Underwriters Insurance Company ("Universal") and Does 1-25, inclusive, for breach of contract and breach of the implied covenant of good faith and fair dealing arising from an underlying state court action as Evert's RV's insurer. Pursuant to Federal Rule of Civil Procedure 56, Universal moves for summary judgment against Evert's RV and cross-defendant Aaron Lyon, and Evert's RV moves for partial summary judgment against Universal.
The court finds sufficient evidence to go to the jury on all claims and cross-claims with the exception of Evert's RV's claim that Universal breached the insurance policy when it refused to indemnify Evert's RV for the punitive damage award in the underlying action.
With respect to Evert's RV's claim for punitive damages, California law and public policy bars the insurer from indemnifying the insured for punitive damages awards. Thus Universal cannot be required to indemnify Evert's RV and Lyon for the punitive damages award. California law generally bars an insurer from indemnifying the insured for an award of punitive damages. PPG Indus. Inc. v. Transamerican Ins. Co., 20 Cal. 4th 310, 317-18 (1999).
This applies even if the policy does not exclude an award of punitive damages from coverage. Id. at 319. To allow such recovery would (1) violate the policy of not allowing liability for intentional wrongdoing to be offset by the negligence of another; (2) defeat the purpose of punitive damages--to punish and deter the wrongdoer; and (3) violate the public policy against indemnification for punitive damages. Id.; see Certain Underwriters at Lloyd's of London v. Pac. S.W. Airlines, 786 F. Supp. 867, 869 (C.D. Cal. 1992). "Thus, California has prohibited such indemnification." Certain Underwriters, 786 F. Supp. at 869.
A breach of the implied covenant of good faith and fair dealing alone does not provide a basis for the insured to recover punitive damages. PPG Indus., 20 Cal. 4th at 318-19. An insurer is liable for punitive damages only if the insurer's egregious misconduct was the basis for the damages. Id. at 319. For example, if the insurer "itself engaged in conduct that is oppressive, fraudulent, or malicious, the insured may recover punitive damages from the [insurer]." Id. Even if Universal was negligent during the Fresno RV action, negligence is not enough. See Ferguson v. Lieff, Cabraser, Heimann & Bernstein, 30 Cal. 4th 1037, 1047-48 (2003) ("Making a negligent attorney liable for lost punitive damages would not serve a societal interest, because the attorney did not commit and had no control over the intentional misconduct justifying the punitive damages award.").
Even if Universal breached the implied covenant of good faith and fair dealing, there is no triable issue of material fact related to whether Universal engaged in egregious misconduct and whether such conduct was the basis for the punitive damages award. Similar to the insurer in PPG Industries, Universal decided not to settle at a rate within the policy limits after the intentionally wrongful conduct of the insured. (Curtis Dep. 30:13-25, 52:10-16, 52:24-55:1 (Docket No. 66-27).) Universal rejected the settlement after relaying the settlement offer to Evert's RV, who "were shocked" at the settlement offer because it was "very exorbitant" and "a ridiculous amount." (Cantrell Dep. 32:2-6, 33:23-34:8 (Docket No. 85-8).)
While Evert's RV argues there was more misconduct by Universal than a failure to settle, the reasoning in PPG Industries against indemnification of punitive damages applies to any negligence by the insurer--not just negligence in a failure to settle. See PPG Indus., 20 Cal. 4th at 316 ("[T]here is the policy of not allowing liability for intentional wrongdoing to be offset or reduced by the negligence of another."). Universal was not oppressive, fraudulent, or malicious in any of its actions as a matter of law. Absent egregious misconduct by the insurer, California law prohibits Universal from indemnifying punitive damages awards. Id. at 319.
Accordingly, the court finds as a matter of law that Universal had no obligation under the policy to indemnify Evert's RV or Lyon for the punitive damage award in the underlying action.
IT IS THEREFORE ORDERED that defendant's motion for summary judgment against Evert's RV and Lyon be, and the same hereby is, GRANTED with respect to Universal's obligation to indemnify Evert's RV and Lyon for the punitive damages award in the underlying action;
AND IT IS FURTHER ORDERED that in all other respects defendant's motion for summary judgment and Evert's RV's motion for partial summary judgment be, and the same hereby are, DENIED. Dated: November 17, 2016
/s/_________
WILLIAM B. SHUBB
UNITED STATES DISTRICT JUDGE