Deines v. Vermeer Mfg. Co.

• Citation: 752 F. Supp. 989
• Decision Date: 28 November 1990
• Docket Number: Civ. A. No. 88-2052-O.
• Parties: Robert E. DEINES, Plaintiff, v. VERMEER MANUFACTURING COMPANY and Liberty Mutual Insurance Company, Defendants.
• Court: U.S. District Court — District of Kansas

752 F. Supp. 989

Robert E. DEINES, Plaintiff, v. VERMEER MANUFACTURING COMPANY and Liberty Mutual Insurance Company, Defendants.

Civ. A. No. 88-2052-O.

United States District Court, D. Kansas.

November 28, 1990.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Gene E. Schroer, Schroer, Rice, P.A., Topeka, Kan., Aylward, Svaty & Sherman, Ellsworth, Kan., for plaintiff.

Keith Martin, Payne & Jones, Richard T. Merker, Wallace, Saunders, Austin, Brown and Enochs, Overland Park, Kan., for defendants.

MEMORANDUM AND ORDER

EARL E. O'CONNOR, Chief Judge.

This matter comes before the court on the motion of defendant Liberty Mutual Insurance Company (hereinafter "Liberty Mutual") for summary judgment. Plaintiff Robert E. Deines (hereinafter "Deines") contends that Liberty Mutual is liable because the insurer failed to inspect, advise, and counsel co-defendant Vermeer Manufacturing Company (hereinafter "Vermeer Manufacturing") that the company designed and manufactured a defective hay baler. Deines premises the alleged liability of Vermeer Manufacturing on section 324A of the Restatement (Second) of Torts. For the reasons stated below, we will grant defendant's summary judgment motion in part.

I. STATEMENT OF FACTS

On October 30, 1986, plaintiff's right arm was amputated after it became entangled in the power-fed compression rollers of a Vermeer Model 605C hay baler. The model 605 line of hay balers was invented and designed by Gary Vermeer. Vermeer Manufacturing sold the 605C model from 1974 to 1979. Plaintiff contends that the intake area, operator's manual, and safety decals on the 605C model make the hay baler unreasonably dangerous and defective. The company continues to guard the intake area of its hay balers in the same manner that the intake area was guarded in 1974. The operator's manuals that accompanied the hay baler in question were published in 1974 and 1975 and the safety decals on the 605C model operated by Deines were designed in 1974.

Liberty Mutual provided Vermeer Manufacturing with products liability insurance from 1967 to November of 1975. The insurance company, as a condition of the policy, conducted safety inspections of the insured's products. This service was a "selling point" used by Liberty Mutual's insurance salesmen in describing coverage to prospective clients. The decision of Harry Vermeer and Gary Vermeer to purchase insurance from Liberty Mutual was made, in part, because they considered Liberty Mutual's inspections to be of value to Vermeer Manufacturing.

Liberty Mutual, through its agents and employees, conducted inspections of products manufactured by Vermeer Manufacturing. Lawrence William Shaul (hereinafter "Shaul"), a loss prevention consultant employed by Liberty Mutual, visited Vermeer Manufacturing's plant in Pella, Iowa, on a regular basis and "inspected almost all of the equipment." These inspections were conducted pursuant to Liberty Mutual's policies and procedures manual. Shaul examined Vermeer Manufacturing's products for compliance with standards published by the American National Standards Institute (hereinafter "ANSI"), the Occupational Safety and Health Administration (hereinafter "OSHA"), and the American Society of Agricultural Engineers (hereinafter "ASAE").

The purpose of the inspections was, in part, to help Vermeer Manufacturing prevent accidents. Vermeer Manufacturing solicited Shaul's opinion as to safety problems and occasionally sought his approval for a change in a product. Vermeer Manufacturing was receptive to Shaul's ideas. The company did not employ its own engineer during most of the relevant time period and therefore relied upon Liberty Mutual's inspections and its advice regarding the design of guarding, decals, warnings, operator manuals, and other safety aspects of hay baler models 605, 605A, 605B, and 605C.

II. SUMMARY JUDGMENT STANDARDS

In considering a motion for summary judgment, the court must examine all the evidence in a light most favorable to the nonmoving party. Barber v. General Elec. Co., 648 F.2d 1272, 1276 n. 1 (10th Cir.1981). A moving party who bears the burden of proof at trial is entitled to summary judgment only when the evidence indicates that no genuine issue of material fact exists. Fed.R.Civ.P. 56(c); Maughan v. SW Servicing, Inc., 758 F.2d 1381, 1387 (10th Cir.1985). If the moving party does not bear the burden of proof, he must show "that there is an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 2554, 91 L.Ed.2d 265 (1986). This burden is met when the moving party identifies those portions of the record which demonstrate the absence of material fact. Id. at 323, 106 S.Ct. at 2552.

Once the moving party meets these requirements, the burden shifts to the party resisting the motion, who "must set forth specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 2514, 91 L.Ed.2d 202 (1986) (emphasis added). It is not enough for the party opposing a properly supported motion for summary judgment to "rest on mere allegations of denials of his pleading." Id. Genuine factual issues must exist that "can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Id. at 250, 106 S.Ct. at 2511.

III. LIABILITY UNDER RESTATEMENT (SECOND) OF TORTS, § 324A

Deines contends that Liberty Mutual undertook to perform safety engineering services for Vermeer Manufacturing, which the insurance company should have recognized as necessary to protect third persons, when Liberty Mutual conducted inspections and advised Vermeer Manufacturing as to safety aspects of the Model 605C hay baler. Plaintiff relies upon Restatement (Second) of the Law of Torts § 324A (1965) in support of his claims.¹ That section provides in pertinent part as follows:

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 the 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.

The Kansas Supreme Court first recognized and adopted the principles upon which section 324A is based in Jenree v. The Metropolitan Street Railway Co., 86 Kan. 479, 121 P. 510 (1912). Over seventy years later, the court judicially adopted Restatement of Torts (Second) § 324A as the law of Kansas in Schmeck v. City of Shawnee, 232 Kan. 11, 26-27, 651 P.2d 585, 598 (1982).² The Supreme Court of Kansas reaffirmed Schmeck in Fudge v. City of Kansas City, 239 Kan. 369, 373, 720 P.2d 1093, 1098-99 (1986), Cansler v. State, 234 Kan. 554, 566-67, 675 P.2d 57, 67 (1984), and Ingram v. Howard-Needles-Tammen & Bergendoff, 234 Kan. 289, 295, 672 P.2d 1083, 1087 (1983).

The threshold requirement for the application of section 324A is whether the defendant undertook, gratuitously or for consideration, to render services to another. Evans v. Liberty Mut. Ins. Co., 398 F.2d 665, 667 (3d Cir.1968); Leroy v. Hartford Steam Boiler Inspection & Ins. Co., 695 F.Supp. 1120, 1126-27 (D.Kan.1988); Gooch v. Bethel A.M.E. Church, 246 Kan. 663, 667, 792 P.2d 993, 998 (1990). Liberty Mutual argues that its inspections were conducted merely to serve its own interests of underwriting, rating and loss prevention, and hence it did not engage in an "undertaking." Plaintiff contends that the inspections served dual purposes. In addition to assisting the insurer determine whether to underwrite a risk, the inspections helped the insured prevent accidents. Several courts have held that any benefit derived by an insurer from inspections does not remove the inspection process from the scope of the "undertaking" envisioned by section 324A. See, e.g., Brown v. Michigan Millers Mut. Ins. Co., Inc., 665 S.W.2d 630, 634 (Mo.App.1983); Seay v. Travelers Indemnity, Co., 730 S.W.2d 774, 779 (Tex. App.1987).

An insurance carrier's representation to a policyholder that it offers inspection services for the benefit of said policyholder constitutes an "undertaking" on the part of the insurer. Leroy v. Hartford Steam Boiler, 695 F.Supp. at 1127 (dictum); see also Malkiewicz v. R.R. Donnelley & Sons Co., 703 F.Supp. 49, 50 (M.D. Tenn.1989) (insurer that attempts to improve safety is liable to those who are injured); Schanz v. New Hampshire Ins. Co., 165 Mich.App. 395, 402, 418 N.W.2d 478, 482 (1988) (insurer who undertakes to inspect for insured's benefit owes duty to inspect with reasonable care); Huggens v. Aetna Casualty & Surety Co., 245 Ga. 248, 248, 264 S.E.2d 191, 192 (1980) (reliance by employer on insurer's inspections gives rise to action in tort for negligent inspection). The uncontroverted facts establish that Liberty Mutual offered to conduct safety inspections³ for the benefit of its policyholders and that the insured, Vermeer Manufacturing, relied upon such inspections.⁴ We therefore find that the Liberty Mutual's actions meet the "undertaking" requirement of section 324A.

A. Liability of Liberty Mutual under § 324A(a)

Subsection (a) requires that the activities of the defendant must have somehow increased the risk of harm to the plaintiff. See, e.g., Canipe v. Nat'l Loss Control Serv. Corp., 736 F.2d 1055, 1062 (5th Cir.1984), cert. denied, 469 U.S. 1191, 105 S.Ct. 965, 83 L.Ed.2d 969 (1985) (§ 324A(a) requires change in conditions that increase risk of harm to plaintiff over danger before defendant's involvement); Dowling v. Am. Dist. Tel. Co., No. 85 C 4420, 1988 WL 93939 (N.D.Ill. Sept. 2, 1988) (§ 324A(a) applies where defendant creates new risk or...