Schoenwald v. Farmers Co-op. Ass'n of Marion

• Decision Date: 21 March 1991
• Docket Number: No. 17287,17287
• Citation: 474 N.W.2d 519
• Parties: Allen R. SCHOENWALD, Administrator of the Estate of Keith Schoenwald and Fred Schoenwald, Plaintiffs and Appellants, v. FARMERS COOPERATIVE ASSOCIATION OF MARION; Baldor Electric Company; Roger Conger; and Conger Construction Co., Inc., Defendants, and Mills Mutual Insurance Group; Millers National Insurance Company, a member of said group; Grain Dealers Mutual Insurance Company, Defendants and Appellees. . Considered on Briefs
• Court: South Dakota Supreme Court

Page 519

474 N.W.2d 519

Allen R. SCHOENWALD, Administrator of the Estate of Keith Schoenwald and Fred Schoenwald, Plaintiffs and Appellants, v. FARMERS COOPERATIVE ASSOCIATION OF MARION; Baldor Electric Company; Roger Conger; and Conger Construction Co., Inc., Defendants and Mills Mutual Insurance Group; Millers National Insurance Company, a member of said group; Grain Dealers Mutual Insurance Company, Defendants and Appellees.

No. 17287.

Supreme Court of South Dakota.

Considered on Briefs March 21, 1991.

Decided Sept. 4, 1991.

William A. Moore of Samp Law Office, Sioux Falls, for plaintiffs and appellants.

Gary Pashby of Boyce, Murphy, McDowell & Greenfield, Sioux Falls, V. Owen Nelson, Kay Nord Hunt, Minneapolis, Minn., for defendants and appellees.

TICE, Circuit Judge.

This is an appeal from an order granting summary judgment to defendants Mills Mutual Insurance Group, Millers National Insurance Company and Grain Dealers Mutual Insurance Company (Mills Mutual). The plaintiff, Allen R. Schoenwald (Schoenwald), appeals. We affirm.

FACTS

Farmers Cooperative Association of Marion (Farmers Cooperative) operated a grain elevator facility in Marion, South Dakota. On November 2, 1985, an explosion occurred at the facility resulting in the deaths of three individuals including Keith and Fred Schoenwald. An investigation by a state deputy fire marshall revealed that the cause of the explosion was a combination of a defective bearing in the electric motor that operated a conveyor belt in the basement of the elevator and a high accumulation of grain dust in the motor.

At the time of the explosion, Mills Mutual provided property and casualty insurance coverage to Farmers Cooperative. Mills Mutual inspected the premises of the facility approximately two to three times per year and conducted an inspection approximately three months prior to the explosion. Mills Mutual made these inspections for the purposes of determining insurance rates and continued coverage of the facility. Mills Mutual would make suggestions to Farmers Cooperative concerning the safety of the plant and employees following each inspection.

Farmers Cooperative understood that the purpose of Mills Mutual's inspections were for Mills Mutual's underwriting and rate-setting. Farmers Cooperative developed and conducted its own inspection program entirely independent of Mills Mutual inspections. These inspections occurred at least weekly and sometimes daily.

Schoenwald, administrator of the estate of Keith and Fred Schoenwald, claims that the trial court erred in granting Mills Mutual's motion for summary judgment. He asserts that an issue of material fact exists as to whether Mills Mutual breached a duty of reasonable care in negligently inspecting the grain facility. This appeal concerns whether Mills Mutual owed a duty to use reasonable care in inspecting the premises of Farmers Cooperative.

STANDARD OF REVIEW

In reviewing a trial court's grant of summary judgment, two questions must be asked to determine whether the summary judgment is proper. The first is whether there are genuine issues as to any material fact. The second is whether the moving party is entitled to a judgment as a matter of law. Groseth Intern., Inc. v. Tenneco, Inc., 410 N.W.2d 159 (S.D.1987). The moving party has the burden of proof and the evidence must be viewed most favorably to the non-moving party with reasonable doubts resolved against the moving party. Id.; Wilson v. Great Northern Railway Company, 83 S.D. 207, 157 N.W.2d 19 (1968).

DECISION

This court has not had the opportunity to address the issue of whether an insurer owes a duty to its insured to properly inspect. The focal point of the issue for this court is the nature, if any, of the duty owed by an insurance company to its insured. At the outset, we recognize that it is for the court to determine, as a matter of law, "the existence of a duty, i.e., whether a relation exists between the parties such that the law will impose upon the defendant a legal obligation or reasonable conduct for the benefit of the plaintiff...." Cuppy v. Bunch, 88 S.D. 22, 26, 214 N.W.2d 786, 789 (S.D.1974). "Usually, the determination of whether a defendant owes a duty to a plaintiff does not require examination of the facts; it is a question of law and summary judgment is appropriate when the trial judge resolves the duty question in the defendant's favor." Erickson v. Lavielle, 368 N.W.2d 624, 627 (S.D.1985).

Merely because an individual or a company performs an inspection does not, in and of itself, create an obligation to perform such inspection in a non-negligent manner. Smith v. Allendale Mut. Ins. Co., 410 Mich. 685, 303 N.W.2d 702 (1981); Nelson v. Union Wire Rope Corporation, 31 Ill.2d 69, 199 N.E.2d 769 (1964); American Mut. Liabil. Ins. Co. v. St. Paul F & M Ins. Co., 48 Wis.2d 305, 179 N.W.2d 864 (1970); Hartford Steam Boiler I. & Ins. Co. v. Pabst Brewing Co., 201 F. 617 (C.A.7 1912); and Gooch v. Bethel A.M.E. Church, 246 Kan. 663, 792 P.2d 993 (1990).

Whether there is a duty established in this case would fall within the parameters of Restatement (Second) of Torts § 324A (1965):

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.

In Cuppy v. Bunch, supra, we considered whether § 324A of the Restatement (Second) should be adopted in South Dakota. While we held that the facts in Cuppy did not bring that case within the parameters of § 324A, we nonetheless accepted its applicability. While the issue in Cuppy was decided based upon the exercise of control over the circumstance or being capable of exercising control, the issue here is more complex.

Restatement (Second) § 324A deals with the rendering of services to another. For there to be a duty, those services must fall within the definition of sub-paragraphs a, b, or c. Schoenwald acknowledges that, under the circumstances of this case, these subparagraphs are not applicable. There is no suggestion that Mills Mutual's conduct increased the risk of harm, nor was any harm suffered because of reliance upon the inspections of Mills Mutual. The duty that Schoenwald asserts was breached, was in effect, an asserted duty owed by the insurance company to at least assist the grain elevator in providing a safe environment for its employees. If Mills Mutual undertook to perform such a duty (as was owed by Farmers Cooperative) then they may be held liable.

A number of cases have, indeed, held insurance companies so liable. See Van Winkle v. American Steam-Boiler...