Opinion ID: 1757327
Heading Depth: 1
Heading Rank: 2

Heading: Liability of Travelers.

Text: Travelers was the insurance carrier for Farmaster Products and for several years prior to Thompson's injury had conducted what it called accident prevention surveys, which included semiannual inspections of Farmaster's premises. These surveys were scheduled several days in advance to assure that management personnel at the plant would be present at the time they were made. A typical survey would first involve a review by the Travelers representative of all accident reports compiled since the last inspection, then an inspection of the plant, followed by a meeting with plant management to discuss his findings and recommendations. Following completion of the survey, Travelers prepared a letter of confirmation which was mailed to Farmaster, with copies to its parent company and its insurance broker. These letters of confirmation contained the inspection report of Travelers' representative, pointing out unsafe conditions and employee practices, and recommending procedures to correct them. In addition to its accident prevention surveys, Travelers made available a safety leadership program for its insureds' supervisory personnel to increase their awareness and knowledge of how to prevent accidents. One such program had been presented by Travelers at Farmaster before Thompson's injury. A. The directed-verdict and judgment-n. o. v. motions. Despite the fact Travelers had conducted at least four inspections of the Farmaster plant prior to Thompson's injury, none of the allegedly hazardous conditions or practices discussed in Division I were noted in its reports. However, Travelers argues that the nature of its relationship to Farmaster, as its insured, did not give rise to a duty of care in its inspections and that, in any event, the evidence was insufficient to submit the issue to the jury. It argues that its surveys and safety programs were purely voluntary as far as its insureds were concerned: they were free to take advantage of them, or not, at their discretion. According to it, the surveys were advisory only and were merely a service to Farmaster; Travelers assumed no responsibility for defects on the premises or for their correction. In support, Travelers cites this disclaimer provision of its confirmation letters to Farmaster: This report is based upon conditions and practices observed and information supplied by management personnel at the time of this visit. It does not purport to list all hazards nor to indicate that other hazards do not exist. Inspections and recommendations made by The Travelers are advisory and designed to assist insureds in the establishment and maintenance of their own safety activities. The Travelers assumes no responsibility for management and control of these activities nor for the correction of the conditions pointed out herein. Despite Travelers' contention that the case is distinguishable, we have clearly recognized a cause of action against an insurer based upon negligence in conducting gratuitous inspections. See Fabricius v. Montgomery Elevator Co., 254 Iowa 1319, 1325-27, 121 N.W.2d 361, 363-65 (1963) (suit by employee against worker's compensation carrier). [2] The legislature initially responded to Fabricius by prohibiting suits based on such inspections, § 88A.14, The Code 1966 (No inspection of any place of employment made by insurance company inspectors . . . shall be the basis for imposition of civil liability upon the inspector or the insurance company . . . .). See Bowen v. Kaplan, 237 N.W.2d 799, 80 (Iowa 1976); 2A Larson, supra § 72.90, at 14-123. However, we note that in 1972 the prohibition against such suits was omitted. 1972 Session, 64th G.A., ch. 1028, § 1. but see § 517.5, The Code 1979. We conclude that claims against insurance carriers were not considered by the legislature to be inimical to the purposes of worker's compensation or public policy at the time of Thompson's accident. See 2A Larson, supra § 72.90, at XX-XXX-XXX (claims by employees against worker's compensation insurance carriers as third parties). Section 324A of the Restatement imposes liability for gratuitous inspections, and it is apparent the trial court relied upon that section in framing its instructions to the jury. It provides: One who undertakes, gratuitously or for consideration, to render services to another which he should recognize as necessary for the protection of a third person or his things, is subject to liability to the third person for physical harm resulting from his failure to exercise reasonable care to protect his undertaking, if (a) his failure to exercise reasonable care increases the risk of such harm, or (b) he has undertaken to perform a duty owed by the other to the third person, or (c) the harm is suffered because of reliance of the other or the third person upon the undertaking. Id. § 324A, at 142. The Restatement rule is consistent with the holding of Fabricius and with the prevailing view of cases from other jurisdictions. See, e. g., Evans v. Otis Elevator Company, 403 Pa. 13, 168 A.2d 573 (1961) (employee's action against elevator company based upon negligent inspection of employer's elevator); Prosser, supra § 56, at 347-50; Annot., Compensation Carrier Negligence, 93 A.L.R.2d 598 (1964). Application of section 324A, which we here adopt, depends on whether there was substantial evidence that the inspection was one which Travelers should have recognized as necessary for the protection of third persons and, if so, that (1) such inspection increased the risk of harm or (2) harm was suffered by Thompson because of reliance by him or by Farmaster on the inspection. [3] If these elements are established, liability may be imposed even if the inspections were voluntary, or only a service to Farmaster, as Travelers asserts. The source of Travelers' duty of care, under the Restatement, is independent of any duty of Farmaster, as the employer, to provide a safe place of employment; Travelers' argument that it cannot be charged with such a duty, because it is nondelegable, is therefore inapposite. Travelers also argues that it cannot be held under a duty of inspection under its insurance contract with Farmaster. However, its liability for its inspections does not arise from, nor is it circumscribed by, the contract of insurance; it arises, if at all, from its undertaking the responsibility of making such inspections in such a manner as to increase the risk of harm or create reliance to another's detriment. See Restatement, supra § 324A, at 142. B. Liability under section 324A(a). Increased risk of harm under subsection (a) is illustrated by the Restatement: A operates a grocery store. An electric light hanging over one of the aisles of the store becomes defective, and A calls B Electric Company to repair it. B Company sends a workman, who repairs the light, but leaves the fixture so insecurely attached that it falls upon and injures C, a customer in the store who is walking down the aisle. B Company is subject to liability to C. Restatement, supra § 324A, Comment c, Illustration 1. When the evidence is viewed in the light most favorable to the plaintiff, Pease v. Zazza, 295 N.W.2d 43, 46 (Iowa 1980), the jury could find that this press was inadequately guarded, operable by foot, independently of the hand controls which would have prevented Thompson's injury; that the foot-control access door was propped open, permitting accidental activation; and that the key controlling the mode of operation was left in the control box at all times. It could further find that these conditions existed at the time of Travelers' inspections, which failed to reveal them. However, this evidence showed only that the risks present at the time of the inspections remained unchanged; there was no evidence of any changes brought about by Travelers in the machine or Farmaster's operating procedures which could be said to have increased the risk. Thus, there was insufficient evidence of liability under Restatement section 324A(a), and the trial court erred in submitting that issue to the jury. C. Liability under section 324A(c). On the issue of liability under subsection (c), there was evidence from which the jury could find Farmaster relied upon these inspections and Thompson was injured as a result of such reliance. Despite Travelers' assertion that Farmaster personnel had enough practical experience to know unguarded presses were dangerous and that it had its own safety committee, Travelers clearly represented itself as possessing superior expertise in the area of plant safety. Its inspector, in contrast to the members of Farmaster's internal safety committee, had formal education in areas pertinent to accident prevention; Farmaster obviously considered Travelers to possess greater knowledge in the area because it arranged for Travelers' personnel to come to Farmaster's plant and conduct a safety school. Travelers' own inspector testified he would expect Farmaster to rely upon these inspections. We conclude the court properly submitted the issue of liability under subsection 324A(c).