Viducich v. Greater New York Mut. Ins. Co.

• Decision Date: 01 July 1963
• Docket Number: No. A--87,A--87
• Parties: John S. VIDUCICH, Plaintiff-Respondent, v. GREATER NEW YORK MUTUAL INSURANCE COMPANY, an insurance corporation, Defendant-Appellant.
• Court: New Jersey Superior Court — Appellate Division

Page 15

80 N.J.Super. 15

192 A.2d 596

John S. VIDUCICH, Plaintiff-Respondent, v. GREATER NEW YORK MUTUAL INSURANCE COMPANY, an insurance corporation, Defendant-Appellant.

No. A--87.

Superior Court of New Jersey Appellate Division.

Argued June 10, 1963.

Decided July 1, 1963.

Jerome S. Lieb, East Orange, for appellant (Harkavy & Lieb, East Orange, attorneys).

Arnold M. Stein, Denville, for respondent (Stein & Einhorn, Denville, attorneys).

Before Judges CONFORD, GAULKIN and KILKENNY.

The opinion of the court was delivered by

GAULKIN, J.A.D.

Defendant appeals by our leave from the denial of its motion for summary judgment.

The question presented is whether the pleadings, depositions and affidavits which were before the trial judge show 'palpably that there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment * * * as a matter of law.' R.R. 4:58--3. We think that they do, and that the summary judgment should have been granted.

Plaintiff's complaint alleges that defendant issued workmen's compensation and public liability insurance policies to plaintiff's employer, Code Corporation (Code), under the terms of which 'defendant reserved the right to inspect the premises, machinery, apparatus and other equipment' of Code and the right 'to make recommendations and to provide supervision * * * for the correction, removal or avoidance of any defects or potential defects or potential industrial hazards * * * and to prescribe and enforce rules and regulations' relating thereto; that 'one of the reasons' defendant reserved these rights 'was to make certain that the premises, machinery, apparatus and other equipment were reasonably safe, and presented no unreasonable risk of harm to employees of Code Corporation'; that 'on at least one occasion prior to November 18, 1959' defendant inspected the machinery 'pursuant to the terms' of the policies, but '(s)uch inspection or inspections were performed in a negligent and careless manner, and in utter disregard of the fact that there existed upon the premises of Code Corporation a certain wood-shaping machine which was maintained in a dangerous manner, and which had improper equipment, faulty or no safety devices, and * * * was a dangerous instrumentality which presented an unreasonable risk of harm to employees of Code Corporation * * *.' Plaintiff alleged that as a result of this he was injured on November 18, 1959 while operating said machine. Another count of the complaint repeats the foregoing allegations and adds the charge that defendant 'negligently and carelessly selected, hired and retained incompetent * * * persons * * * to make such inspection or inspections * * *.'

Defendant's answer asserts:

'The right of inspection reserved by the Defendant in its policies of insurance is a privilege to the Defendant in connection with its determination of the risk to be assumed and the premium to be charged for same. Such reservation imposed no duty upon the Defendant to its assured, Plaintiff or anyone else and Defendant did not assume such liability or duty.'

The workmen's compensation policy provides:

'4. Inspection and Audit.

The company and any rating authority having jurisdiction by law shall each be permitted to inspect the work places, machinery and equipment covered by this policy and to examine and audit the insured's books, vouchers, contracts, ducoments and records of any and every kind at any reasonable time during the policy period and any extension thereof and within three years after termination of this policy, as far as they relate to the premium bases or the subject matter of this insurance.'

The liability policy provides:

'2. Inspection and Audit.

The company shall be permitted to inspect the insured premises, operations and elevators and to examine and audit the insured's books and records at any time during the policy period and any extension thereof and within three years after the final termination of this policy, as far as they relate to the premium bases or the subject matter of this insurance.'

The affidavits and depositions establish without question that Code was a new venture, incorporated in June 1959 to manufacture guitars. It applied to defendant for insurance and defendant causes an inspection to be made of Code's premises and machinery on July 28 by Underwriters Reporting Service and on July 29 by Underwriters K. Bureau. Defendant's Mr. Schwarz testified: 'This Underwriting and Rating Report--Since the Firm, or the Code Corporation, being a new venture, had not been inspected by the appropriate rating authorities, it was incumbent upon the Insurance Carrier to inspect for rating and classification in order to determine its premium remuneration.' The reports of these inspections were submitted to defendant, and disclosed no dangers. Code had no knowledge of the contents of the report.

The policies were countersigned and issued August 19, 1959, but they covered retroactively from July 17, 1959. Plaintiff contends, and it is not denied, that the risk must have been covered on binder prior to the issuance of the policies.

To support his cause of action against defendant, plaintiff must show (1) that defendant contracted to make inspections and report the result to Code, or (2) undertook to do so gratuitously under circumstances which created a duty upon defendant owed to Code or its employees, to do it with due care, and (3) in either case was negligent, such negligence resulting proximately in the injury. Van Winkle v. American Steam Boiler Co., 52 N.J.L. 240, 19 A. 472 (Sup.Ct.1890); Nelson v. Union Wire Rope Corp., 39 Ill.App.2d 73, 187 N.E.2d 425 (App.Ct.1963); Restatement, Torts § 325; Annotation 6 A.L.R.2d 284 (1949).

Defendant did not contract to make inspections or report the results to Code. Indeed, plaintiff's complaint does not allege that it did. The complaint recognizes that the quoted provisions of the policies merely 'reserve the right' to defendant to make such inspections. Cf. Van Winkle, supra, 52 N.J.L., at p. 242, 19 A., at p. 473.

However, plaintiff argues that, having undertaken to make the inspection, defendant was under a duty to exercise due care to make it properly, and to report the findings to Code. In support of his contention, plaintiff cites Van Winkle, supra; Bacican v. American Mutual Liability Insurance Co., 29 F.R.D. 133 (E.D.Pa., 1961); Smith v. American Employer's Insurance Company, 102 N.H. 530, 163 A.2d 564 (Sup.Ct.1960); Bollin v. Elevator Constr. & Repair Co., 361 Pa. 7, 63 A.2d 19 (Sup.Ct.1949); Sheridan v. Aetna Casualty & Surety Co., 3 Wash.2d 423, 100 P.2d 1024 (Sup.Ct.1940). However, all of these contained elements which do not appear here, and none of them justifies a recovery upon the facts in the case at bar.

Since Van Winkel v. American Steam Boiler Co., supra, is not only a leading and much cited case but was decided by our own Supreme Court, we shall discuss it in some detail. It was heard upon a demurrer to a declaration which alleged the following:

Van Winkle was the owner of a mill near one owned by the Ivanhoe Paper Company in which was located a large steam boiler 'so situated that if it exploded the building of (Van Winkle) would be inevitably damaged.' American Steam Boiler Insurance Company insured Ivanhoe's boiler. Its policy provided that 'Prevention of accidents by explosion being the primary object of this company, it is hereby agreed that the inspector of this company shall, at all reasonable times, have access to said boiler or boilers, and the machinery connected therewith, and every and all facilities be offered to said inspector, when this company shall so desire, for the purpose of making an examination of said boiler or boilers or machinery; and should such inspector, upon said examination, discover any defect, affecting the safety of said boiler or boilers or machinery, he shall notify the assured; or should the assured discover any defect, or be notified by any person having any interest therein of any defect or source of danger to said boiler or boilers or machinery, and upon such defect being brought to the knowledge of the assured, or of his agent, the said boiler or boilers or machinery so affected shall cease to be worked until such defect shall be corrected or repaired by the assured to the entire satisfaction and approval of the inspector of this company, and upon a failure so to do this policy shall become null and void.' (52 N.J.L., at p. 241, 19 A., at p. 473)

The court held:

'It is plain, from these references to this policy, that the defendant was in no wise obligated by its contract to make any inspection whatever of this piece of machinery. It acquired the right to do so by its inspector when it should so desire, but there was nothing in the agreement compelling it to perform such office. And, consequently, if the insurance company had altogether refrained from making an inspection of this boiler, or had refused so to do, it would seem clear that it would have incurred no responsibility either to the assured or to the plaintiff for the disaster that has occurred. In such a situation it would have owed to the former no duty by force of contract, and to the latter none by force of the law.' (52 N.J.L., at p. 242, 19 A., at p. 473)

However, said the court:

'The declaration avers, and the fact of course is admitted by the demurrer, that the defendant, in the exercise of its volition, made repeated inspections of...