Commercial Union Ins. Co. v. DeShazo

• Decision Date: 06 September 2002
• Citation: 845 So.2d 766
• Parties: COMMERCIAL UNION INSURANCE COMPANY v. Alton Lee DeSHAZO et al. CNA Insurance Company v. Alton Lee DeShazo et al. Fireman's Fund Insurance Company v. Alton Lee DeShazo et al.
• Court: Alabama Supreme Court

845 So.2d 766

COMMERCIAL UNION INSURANCE COMPANY v. Alton Lee DeSHAZO et al.

CNA Insurance Company v. Alton Lee DeShazo et al.

Fireman's Fund Insurance Company v. Alton Lee DeShazo et al.

1002083, 1099.

Supreme Court of Alabama.

September 6, 2002.

David M. Loper and Amy L. Stuedeman of Campbell, Waller & Loper, L.L.C., Birmingham, for appellant Commercial Union Insurance Company (reply brief filed by Cinda R. York of Campbell, Waller & Loper, L.L.C., Birmingham).

Richard E. Smith, Deborah Alley Smith, and Greer B. Mallette of Christian & Small, L.L.P., Birmingham, for appellant CNA Insurance Company.

David W. McDowell and John W. Clark, Jr., of Clark & Scott, P.C., Birmingham, for appellant Fireman's Fund Insurance Company.

Roger L. Lucas of Lucas, Wash, Petway, Tucker & Stephens, P.C., Birmingham, for appellees.

HOUSTON, Justice.

This is a negligent inspection case. The defendants, Commercial Union Insurance Company (hereinafter "Commercial Union"), CNA Insurance Company (hereinafter "CNA"), and Fireman's Fund Insurance Company (hereinafter "Fireman's Fund"), liability and workers' compensation insurance carriers for Sepco Corporation (hereinafter "Sepco"), petitioned, pursuant to Rule 5, Ala. R.App. P., for permission to appeal from the denial of their motion for a summary judgment against the plaintiffs, Alton Lee DeShazo; Darrell Kim DeShazo; Frances Kay DeShazo; and Richard Clark Bishop, the administrator of the estate of Margaret Virginia DeShazo, deceased, all of whom previously worked for an independent contractor at Sepco's facility. We granted permission to appeal.

From 1975 to 1984, the plaintiffs were employed by an independent contractor who provided janitorial services for Sepco. The plaintiffs primarily cleaned office areas, but they also cleaned bathrooms, a break room, and offices located in one of Sepco's large production rooms where asbestos products were manufactured. They claim that while working in Sepco's facilities they were exposed to fibrous asbestos dust, which, they say, subsequently caused asbestosis and other illnesses.

During the time the plaintiffs were providing cleaning services at the Sepco facility, Commercial Union, CNA, and Fireman's Fund issued various insurance policies to Sepco.¹ All of those policies contained "inspection and audit" clauses, which stated that any inspections conducted by the insurer would not be for the benefit of the insured or anyone else and would not constitute an undertaking to ensure that the inspected facilities were safe.² Commercial Union, CNA, and Fireman's Fund all conducted inspections of the Sepco facilities before or while their respective policies were in effect.

The plaintiffs sued Commercial Union, CNA, and Fireman's Fund, alleging that the insurers failed to detect unsafe working conditions during their inspections of the Sepco facilities. Commercial Union, CNA, and Fireman's Fund moved for a summary judgment, arguing, among other things, that the plaintiffs could not recover under a negligent or wanton inspection theory because, they say, Commercial Union, CNA, and Fireman's Fund did not undertake a duty to inspect for the benefit of the plaintiffs. The trial court denied the motion.

In reviewing a motion for a summary judgment, we apply the same standards used by the trial court. Ex parte Lumpkin, 702 So.2d 462, 465 (Ala.1997). When a movant makes a prima facie showing that there is no genuine issue of material fact, the burden shifts to the nonmovant to produce substantial evidence creating such an issue. Bass v. South-Trust Bank of Baldwin County, 538 So.2d 794, 797-98 (Ala.1989). "Substantial evidence" is evidence "of such weight and quality that fair-minded persons in the exercise of impartial judgment can reasonably infer the existence of the fact sought to be proved." West v. Founders Life Assurance Co. of Florida, 547 So.2d 870, 871 (Ala.1989); see also Ala.Code 1975, § 12-21-12. Moreover, "[o]ur review is further subject to the caveat that this Court must review the record in a light most favorable to the nonmovant and must resolve all reasonable doubts against the movant." Dunnam v. Ovbiagele, 814 So.2d 232, 236 (Ala.2001).

This Court has previously examined claims of negligent inspection on the part of insurers in cases involving workers' compensation policies. In fact, we first recognized a common-law claim of negligent inspection in such a case. See Beasley v. MacDonald Eng'g Co., 287 Ala. 189, 249 So.2d 844 (1971). In Beasley, the plaintiff alleged that his employer's workers' compensation carrier undertook to inspect the employer's facilities in order to determine, to improve, and to promote the safety of the facilities, as well as to provide safety engineering services. Id. at 846. The plaintiff claimed that the defendant was negligent in its inspection and that it thus failed to detect a defective condition that later led to an explosion, injuring the plaintiff. Id. In Beasley, we observed that liability can arise from the negligent performance of a voluntary undertaking. Id. at 193, 249 So.2d 844. This doctrine is found in Restatement (Second) of Torts § 324A (1965), which states:

"`Liability to third person for negligent performance of undertaking. 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.'"

Beasley, 287 Ala. at 193, 249 So.2d at 847. The defendant in Beasley undertook "to inspect the premises for safety and to provide safety inspections. Having done so, under the common law expressed in our cases, [the defendant] was under a duty to use care in the performance of this undertaking." Id.

In Armstrong v. Aetna Insurance Co., 448 So.2d 353 (Ala.1983), this Court further elaborated on the tort of negligent inspection. In that case, an independent contractor was injured while performing services on an employer's premises. The independent contractor sued the employer's workers' compensation insurer, alleging that the insurer had been negligent in its inspection of the premises. We stated:

"This case raises the novel question in Alabama whether a workmen's compensation carrier can be held liable on a negligent inspection theory for injuries incurred by an employee of an independent contractor who was not covered by the policy of workmen's compensation insurance issued by the defendant. The tort of negligent inspection is based on the theory that when an insurer undertakes the performance of the duty owed by the insured to a third party, the insurer may be liable to that third-party if the third-party was injured as the proximate result of the insurer's failure to exercise reasonable care in said performance. Restatement (Second) of Torts § 324A [ (1965) ]. Thus, when an insurer undertakes to inspect an insured employer's premises for safety, it assumes the duty of the insured employer to provide a safe place for its employees to work. Beasley v. MacDonald Engineering Co., 287 Ala. 189, 249 So.2d 844 (1971).

"Under Alabama law, the premises owner is also under a duty to employees of an independent contractor to maintain the premises in a reasonably safe condition, except with respect to conditions arising in the progress of the work on the contract. Pate v. United States Steel Corp., 393 So.2d 992, 994 (Ala. 1981); Green v. Reynolds Metals Co., 328 F.2d 372, 374 (5th Cir.1964). In making a safety inspection, does a workmen's compensation carrier assume the insured employer's duty as a premises owner to employees of independent contractors?

"When a workmen's compensation carrier inspects its insured's work place, it does so to promote its interest in underwriting, rating, and loss prevention with respect to the policy of insurance. The duty of care to third persons which it assumes, therefore, must be limited. While an action for negligent inspection sounds in tort and is, therefore, not based on the contract of insurance per se, the class of persons who are the intended beneficiaries of the inspection is limited to those covered by the policy. Since the duty in question is one which is gratuitously assumed by the insurer, we opine that the scope of the duty should be concomitant with the class of persons covered by the policy."

Armstrong, 448 So.2d at 355. This Court held that any duty assumed by a workers' compensation carrier when making an inspection is limited by the policy and does not include a duty to employees of an independent contractor. Id.³

In this case, the plaintiffs allege that Commercial Union, CNA, and Fireman's Fund, by undertaking inspections pursuant to their general liability policies, assumed the duty to provide the plaintiffs with a reasonably safe workplace. We disagree.

As Armstrong explains, the underlying theory of the tort of negligent inspection rests on the notion that the inspecting party assumes the duty of the insured to provide a safe place to work. See id. at 355 ("when an insurer undertakes to inspect an insured employer's premises for safety, it assumes the duty of the insured employer to provide a safe place for its employees to work"); see also Beasley, 287 Ala. at 194, 249 So.2d at 847. In this case, however, the "inspection and audit" clauses in the policies issued by Commercial Union, CNA, and Fireman's Fund all stated that they were not undertaking "to determine or warrant that such property or operations [or workplaces, operations, machinery or equipment] are safe or healthful." Thus Commercial Union, CNA, and...