I see mixed opinions on this. Looks like it might vary from tranny to tranny.
From Tranny Shop FAQs -
Will it hurt to overfill the transmission fluid?
Not really, but because transmission fluid doesn't compress, and air does, severe overfilling may make the fluid become aerated. This could cause abnormal operation.
Will it hurt to overfill the transmission?
In a word, no! Although, it is possible that gross overfilling can cause the fluid to be subjected to moving parts and become aerated which could cause abnormal operation. You may also notice leaks that ordinarily would not occur.
Will overfilling "blow" seals?
In a word, no! The transmission case is vented preventing pressure buildup in normally un-pressurized areas. Severe overfilling can raise the fluid level such that the transmission may lose fluid through the vent or leak from seals that are above the normal fluid level, but the fact remains that the seals that are under pressure and those that are not will not change because of the fluid level.
And the Car Talk guys
Dear Tom and Ray:
Does it harm an automatic transmission if the fluid is well above the "full" mark on the dipstick? Lynn
Tom: Apparently it does. You may notice a little warning that says something like "Caution: Do Not Overfill. Overfilling May Lead to You Making Your Mechanic's Boat Payment This Month."
Ray: But I have to admit, I've never personally seen a case where overfilling has caused any damage to an automatic transmission. I've just seen the extra fluid leak out.
Tom: I suppose what can happen is that the oil can foam and "froth," kind of like a root beer float. And if it's foamy, the fluid won't be able to adequately lubricate the transmission, and it gets damaged.
Ray: But this only a theory. We've never actually seen any evidence of this occurring. So in the interests of science, I'm conducting a little experiment as we speak. On my way home last night, I stopped and put a quart of IBC Root Beer in my brother's transmission. And I guess we'll see what happens.
From a insurance trade paper
An Assembly of Experts
By Garrett Engineers, Long Beach, CA
Our expert was assigned to inspect a pickup truck that suffered an engine fire while pulling a trailer. The owner/driver, reported that he saw a light-colored smoke in his rear view mirror and started to pull off the road to the right-hand shoulder. When he stopped the vehicle and looked under the right front fender he saw the roadside grass on fire. The owner also reported that the vehicle did not have a history of oil leaks of any kind, that he kept the vehicle serviced on a regular basis and that the transmission had been recently serviced (including filter and fluid replacement). He also reported that the trailer was not loaded to full capacity and that he was not exceeding the speed limit at the time of the fire.
Our expert examined the vehicle and its burn patterns. The fire damage was most intense at the level of the transmission dipstick and faded as it went forward and up the engine block. The damage indicated that the origin of the fire was transmission fluid that overflowed the dipstick tube and was ignited by the catalytic converter in the exhaust system directly below the dipstick tube. Confirmation of the transmission overflow was gained by viewing the underside of the vehicle. The transmission housing was coated with an oily fluid. There were no oil stains on the oil sump or the exhaust crossover pipe, indicating that the coating did not come from the front of the vehicle and was not engine oil. The transmission fluid coating appeared fresh and had no evidence of collected road dust or debris, confirming that the leak was recent and supporting the driver’s “no history of oil leaks” statement.
Transmission fluid expands as it is heated. There is a significant difference between the volume occupied by cold transmission fluid versus normal operating temperature transmission fluid. This is why transmissions (among other things) should never be overfilled. When they are overfilled cold, and then run to normal operating temperatures, the fluid expands and can run out the filler tube or dipstick tube. In this case it dripped down onto the very hot catalytic converter, and then caught fire. The pickup truck’s recent transmission service was the most likely cause of the overfilling of the transmission, which caused the fire.