## Facts

- Gary Jones, a San Diego resident, was injured on June 3, 1986, when an automotive battery exploded while he assisted in jump-starting a neighbor’s car; he suffered severe neurological injuries and loss of vision in one eye.
- The battery was manufactured by Johnson Controls, Inc., in Fullerton, California, and was purchased at a Sears store in San Diego, California.
- Jones and his wife sued the neighbor, Sears, and Johnson Controls in California superior court.
- A jury found Sears and Johnson Controls negligent and awarded approximately $2.905 million in compensatory damages to Jones, $325,000 to his wife, and $6.5 million in punitive (exemplary) damages against Johnson Controls.
- Johnson Controls held liability insurance issued by multiple insurers; the insurers filed a California declaratory relief action seeking a determination that they had no duty to indemnify Johnson Controls for the punitive damages award.
- Johnson Controls argued Wisconsin law governed the policies and would permit coverage for punitive damages; the insurers argued California law governed and barred such coverage.
- The trial court granted summary judgment for the insurers, and Johnson Controls appealed.

## Issues

1. Whether California or Wisconsin law governs the insurability of punitive damages arising from a California tort judgment against a Wisconsin-based insured.
2. If California law applies, whether public policy bars indemnity for the punitive damages award.

## Decision

- The Court of Appeal affirmed summary judgment for the insurers.
- California law governed the punitive-damages insurability question under California’s governmental-interest (comparative-impairment) choice-of-law method.
- Because California law bars insurance indemnification for punitive damages, the insurers owed no duty to indemnify Johnson Controls for the $6.5 million exemplary damages award.

## Legal Principles

- California public policy generally prohibits an insured from obtaining insurance indemnity for punitive (exemplary) damages, because punishment and deterrence are meant to fall on the wrongdoer.
- California applies a governmental-interest/comparative-impairment analysis to resolve true conflicts of law by assessing each state’s interests and the extent of impairment if its law is not applied.
- When the injury, injured plaintiff, product manufacture and sale, and forum are centered in California, California’s interest in enforcing its punitive-damages policy can outweigh another state’s interest arising from the insured’s domicile or insurance-program connections.

## Conclusion

The court held that California’s choice-of-law analysis required application of California law, and California’s public policy against insuring punitive damages barred indemnification for the punitive damages awarded against Johnson Controls for injuries occurring in California from a battery manufactured and sold in California.


Stonewall Surplus Lines Ins. Co. v. Johnson Controls, Inc., 14 Cal. App. 4th 637, 17 Cal. Rptr. 2d 713 (Ct. App. 1993)