Inspection By Insurer Not Performance Of A Duty Owed To The Insured

Commercial Liability	Negligence
Inspections	Incidental

An explosion at a grain elevator facility resulted in the deaths of three men. The state fire marshal's office determined the explosion's cause to be the combination of a defective bearing in a conveyor belt electric motor and substantial dust accumulation in the motor.

A trial court granted summary judgment to the grain elevator property and casualty insurer when the estate of two brothers who died in the explosion brought an action against the insurer, alleging negligence in its performance of inspections of the property. The appeal of the judgment was concerned with whether the insurer owed a duty to use reasonable care in the inspection of the premises.

It was undisputed that the insurer had inspected the facility premises several times a year, most recently three months before the accident. After each inspection, the insurer made recommendations to the insured relative to plant and employee safety.

The insured formulated and carried out its own inspection program entirely apart from the insurance company inspections. These inspections were conducted weekly. The insured understood that the insurer performed its inspections for underwriting and rate-setting purposes.

The South Dakota Supreme Court contrasted the matter under review with cases where insurance companies were held liable. It said:

"In each of these cases, ....there were distinctive efforts by the insurance company to go beyond mere inspection for the purposes of determining insurability and premium." There were representations, in advertisements and otherwise, that insurer safety engineers were active in client safety programs "and saved lives, limbs and money." It was stressed that insurer inspections would help maintain safe conditions and forestall loss. In some cases, it could be concluded that the insured purchased an inspection service for its direct benefit when it bought the insurer's policy.

The court concluded that the insurer's advice to the insured about defects was incidental to its determination of insurability and rates. "Merely because (the insured) would receive a benefit from (the insurer's) inspections by way of comment or observations on safety problems does not establish the intent or action to perform a duty of providing a safe working environment on behalf of (the insured)."

The court further suggested that it should encourage the distribution of safety information, "not discourage it by creating a previously nonexisting duty."

The trial court's judgment was affirmed in favor of the insurer and against the estate of the deceased.

Schoenwald et AL., Plaintiffs, Appellants v. Farmers Cooperative Assoc. Of Marion ET AL., Defendants, Appellees. South Dakota Supreme Court. No. 17287-a-TICE. Sept. 4, 1991. CCH 1991-92 Fire and Casualty Cases, Paragraph 3421.