Smith v. Allendale Mut. Ins. Co.

• Citation: 410 Mich. 685,303 N.W.2d 702
• Decision Date: 30 March 1981
• Docket Number: Nos. 1,Docket Nos. 60645 and 62465,2,s. 1
• Parties: Noble SMITH II and Amelia R. Smith, Plaintiffs-Appellants, v. ALLENDALE MUTUAL INSURANCE COMPANY and Factory Mutual Engineering Association, jointly and severally, Defendants and Third Party Plaintiffs-Appellees, v. GREAT LAKES STEEL CORPORATION, Third Party Defendant-Appellee. The Estate of Lowell T. SABRAW, Deceased, by Alvia G. Sabraw, Administratrix, Plaintiff-Appellee, v. MICHIGAN MILLERS MUTUAL INSURANCE COMPANY, a Michigan Corporation, Defendant-Appellant. The Estate of Clarence BULLOCK, Deceased, by Helen J. Bullock, Plaintiff- Appellee, v. MICHIGAN MILLERS MUTUAL INSURANCE COMPANY, a Michigan Corporation, Defendant-Appellant. Michael CSUTORA, Plaintiff-Appellee, v. MICHIGAN MILLERS MUTUAL INSURANCE COMPANY, a Michigan Corporation, Defendant-Appellant. The Estate of Alex CSUTORA, Deceased, by Michael Csutora, Administrator, Plaintiff-Appellee, v. MICHIGAN MILLERS MUTUAL INSURANCE COMPANY, a Michigan Corporation, Defendant-Appellant. James HANSEN and Pauline Hansen, Plaintiff-Appellee, v. MICHIGAN MILLERS MUTUAL INSURANCE COMPANY, a Michigan Corporation, Defendant-Appellant. Donald WAUGH, Plaintiff-Appellee, v. MICHIGAN MILLERS MUTUAL INSURANCE COMPANY, a Michigan Corporation, Defendant-Appellant. to 62470, Dec. Term 1979. Calendar
• Court: Supreme Court of Michigan

Page 702

303 N.W.2d 702

410 Mich. 685

Noble SMITH II and Amelia R. Smith, Plaintiffs-Appellants, v. ALLENDALE MUTUAL INSURANCE COMPANY and Factory Mutual

Engineering Association, jointly and severally, Defendants and Third Party Plaintiffs-Appellees, v. GREAT LAKES STEEL CORPORATION, Third Party Defendant-Appellee.

The Estate of Lowell T. SABRAW, Deceased, by Alvia G.

Sabraw, Administratrix, Plaintiff-Appellee, v. MICHIGAN MILLERS MUTUAL INSURANCE COMPANY, a Michigan

Corporation, Defendant-Appellant.

The Estate of Clarence BULLOCK, Deceased, by Helen J.

Bullock, Plaintiff- Appellee, v. MICHIGAN MILLERS MUTUAL INSURANCE COMPANY, a Michigan

Corporation, Defendant-Appellant.

Michael CSUTORA, Plaintiff-Appellee, v. MICHIGAN MILLERS MUTUAL INSURANCE COMPANY, a Michigan

Corporation, Defendant-Appellant.

The Estate of Alex CSUTORA, Deceased, by Michael Csutora, Administrator, Plaintiff-Appellee, v. MICHIGAN MILLERS MUTUAL INSURANCE COMPANY, a Michigan

Corporation, Defendant-Appellant.

James HANSEN and Pauline Hansen, Plaintiff-Appellee, v. MICHIGAN MILLERS MUTUAL INSURANCE COMPANY, a Michigan

Corporation, Defendant-Appellant.

Donald WAUGH, Plaintiff-Appellee, v. MICHIGAN MILLERS MUTUAL INSURANCE COMPANY, a Michigan

Corporation, Defendant-Appellant.

Docket Nos. 60645 and 62465 to 62470, Dec. Term 1979.

Calendar Nos. 1, 2.

Supreme Court of Michigan.

Argued Dec. 3, 1979.

Decided March 30, 1981.

[410 Mich. 703]

Page 705

Goodman, Eden, Millender & Bedrosian by Joan Lovell, James A. Tuck, Detroit, for plaintiffs-appellants; Richard M. Goodman, Detroit, of counsel

Davidson, Gotshall, Kohl, Secrest, Wardle, Lynch & Clark by Konrad D. Kohl, Mary Ann Zito, Farmington Hills, for defendants and third party plaintiffs-appellees.

Cicinelli, Mossner, Majoros & Alexander, P. C. by Peter F. Cicinelli and T. L. Majoros, Trial Attys., Saginaw (Eugene D. Mossner, Saginaw, on brief), for plaintiffs-appellees Sabraw, Bullock, Michael Csutora, Estate of Alex Csutora, and Hansen.

Martin & Martin by Walter Martin, Saginaw, for plaintiff-appellee Waugh.

Howard S. Otto, Saginaw, for defendant-appellant; George M. Tunison, Saginaw, of counsel.

[410 Mich. 704] Joselyn, Rowe, Jamieson & Grinnan, P. C. by Jack D. Rowe, Detroit, for amicus curiae, Alliance of American Insurers, American Insurance Association and National Association of Independent Insurers.

Michigan Trial Lawyers Association, Lansing, Lopatin, Miller, Bindes, Freedman, Blustone, Erlich & Rosen by Steven G. Silverman, Detroit, amicus curiae, for plaintiff-appellee.

LEVIN, Justice (for affirmance in Smith and reversal in Sabraw).

The question presented concerns the liability of a fire insurer to employees of its insured for injuries sustained as a result of fire hazards not detected and brought to the insured's attention as a result of the insurer's inspections of the insured's premises.

Defendants insured the premises where plaintiffs ¹ or their decedents were employed against losses from fire. The insurers regularly inspected the premises for fire hazards.

Plaintiffs or their decedents sustained accidental injuries in the course of their employment on the insured premises as a result of electrical arcing (Smith) or explosion (Sabraw). Plaintiffs allege that the injuries were caused by fire hazards that would have been detected and, inferentially, corrected, had the insurers conducted their inspections with reasonable care. Because their exclusive remedy against their employers is a workers' compensation claim, they cannot bring an action for their employers' failure to maintain a safe place to work by detecting and correcting those hazards.

[410 Mich. 705] In each of these cases, the jury returned a verdict against the insurer and the trial judge granted judgment notwithstanding the verdict. The Court of Appeals affirmed in Smith ² and reinstated the verdict in

Page 706

Sabraw. ³ Because we conclude that the judgments notwithstanding the verdict were properly granted, we affirm in Smith and reverse in Sabraw

The law does not impose a duty on insurers to inspect the premises of their insureds, although such an obligation may be undertaken.

Plaintiffs rely on concepts concerning an actor's liability to third persons for negligent performance of an undertaking, as they are expressed in the Restatement. Section 324A of the Restatement Torts, 2d, provides that, in certain circumstances, one who undertakes to render services to another which he should recognize as necessary for the protection of a third person is subject to liability if his "failure to exercise reasonable care to perform his undertaking" ⁴ results in physical harm to the third person.

We conclude, as did the dissenting judge in Sabraw, that the threshold requirement of an undertaking to render services to another is lacking in these cases. An insurer's inspection of an insured's premises for fire hazards does not in itself demonstrate an undertaking to render fire inspection and prevention services to the insured. Absent evidence that the insurer agreed or intended to provide services for the benefit of the [410 Mich. 706] insured, there is no basis for a conclusion that such inspections are conducted other than to serve the insurer's interests in underwriting, rating and loss prevention and hence there is no undertaking. An insurer who does not undertake to inspect for the insured's benefit owes no duty to the insured or the insured's employees to inspect with reasonable care; such an insurer is, however, subject to liability if it engages in affirmative conduct creating or enlarging a fire hazard.

I

A

On February 7, 1971, Noble Smith was operating an overhead crane in the course of his employment at Great Lakes Steel Corporation's Ecorse, Michigan, complex, when he heard a crackling noise. Smith turned around and saw sparks flying behind him. He immediately climbed over the controls, hung out of the window of the crane cab, and dropped to the concrete floor below, seriously injuring himself.

Investigation revealed that a shunt cable, part of the assembly linking the crane to its power supply, had separated and made contact with the crane cab, creating an electric arc which burned a hole two inches in diameter through the wall of the cab before contact was interrupted and the arc was extinguished. Arcing may occur in an ungrounded electrical system when more than one ground develops in the system. The ungrounded system that supplied power to Smith's crane served 30 to 40 acres of the Great Lakes plant, and grounds were continually appearing in the system.

Smith and his wife commenced an action against Allendale Mutual Insurance Company (Allendale), [410 Mich. 707] which insured the Great Lakes plant against property damage from fire, and Factory Mutual Engineering Association (Factory Mutual), which by agreement with Allendale inspected the plant for fire hazards and notified Allendale and Great Lakes of problems that it observed.

Smith's theory was that Allendale and its agent Factory Mutual had voluntarily undertaken, by inspecting the Great Lakes plant, to perform Great Lakes' duty to provide its employees with a safe place to work insofar as guarding against fire hazards was concerned. ⁵ He contended that Allendale and Factory Mutual had breached that duty by failing to discover and warn of the risk of fire attendant upon a single ungrounded electrical system extending

through large areas of the plant. ⁶ Smith claimed that he was injured as a result of their negligent failure to identify the hazard posed by the sprawling ungrounded system and to recommend that the system be properly limited so that accidental grounds could be located promptly and the risk of fire resulting from arcing minimized

The jury awarded plaintiffs damages totaling $860,000. The judge granted defendants' motion for judgment notwithstanding the verdict. ⁷

[410 Mich. 708] The Court of Appeals affirmed, stating that the insurer's inspections were "limited in both scope and purpose" and that "employees were not included within the orbit of risk created by the duty assumed." ⁸

B

On September 15, 1969, the Farm Bureau Services feed mill at Zilwaukee, Michigan, exploded, killing three Farm Bureau employees and injuring three others.

Michigan Millers Mutual Insurance Company had insured the Zilwaukee mill for fire damage. John Vaughan, a field inspector for Michigan Millers, inspected the mill at least four times a year from the commencement of construction in 1963 until the explosion.

When he visited the mill on February 19, 1969, Vaughan was appalled by the conditions he encountered. Dust produced by milling was suspended in the air in a concentration that, in his judgment, created a high risk of explosion. ⁹ Vaughan informed the mill manager and a Farm Bureau vice president who happened to be on the premises of his concern but obtained little response. ¹⁰ Dust conditions in the plant remained [410 Mich. 709] unsatisfactory until the explosion.

Vaughan and plaintiffs' expert witness on fires and explosions agreed that the most probable explanation for the explosion centered on the "Bobcat," a four-wheeled industrial vehicle used for a number of purposes including unloading boxcars of grain and meal that arrived at the mill. Shortly before the explosion, an employee unloading a boxcar of corncob meal noticed that the Bobcat's muffler was glowing red hot and heating bits of the corncob material until they became glowing embers that floated into the mass of meal and created small "black spots." Although the employee then halted loading operations, it was likely that ignited bits of the corncob meal had already drifted into the boxcar and been loaded with the rest of the meal into a hopper from which the meal was conveyed to storage bins. In the bins some of these embers continued to burn, ignited adjacent dust, and began a chain reaction that culminated in the explosion.

Although Vaughan inspected the mill...