Jansen v. Fidelity & Casualty Co.

OPINION OF THE COURT

Casey, J. P.

We hold that liability cannot be imposed upon a workers’ compensation and liability insurance carrier in an action by an employee of the insured for injuries sustained in the course of his employment where the alleged negligence of the insurer arises out of the regular safety inspections of the work site conducted by the insurer in an effort to reduce the risk of loss covered by its insurance policy.

Plaintiff was injured in October 1981 while working at a bridge construction site in North Carolina when the suspended rig he was using as a work platform failed, causing him to fall. Defendant, the workers’ compensation and liability insurance carrier for plaintiff’s employers, sent an employee to make periodic inspections of the jobsite for purposes of risk evaluation. Defendant’s inspector visited the site several times both before and after plaintiffs accident, each time reporting findings concerning safety practices and conditions both to defendant and to plaintiffs employers.

Plaintiffs suit against defendant is based on a theory of negligent inspection in that defendant, having undertaken to inspect the construction project for safety purposes, failed entirely to inspect or inadequately inspected the defective rig from which plaintiff fell. The complaint alleges that plaintiff relied upon defendant’s inspections and was injured because of the negligent performance thereof. After issue was joined, the parties engaged in some pretrial discovery. Thereafter, plaintiff moved to strike defendant’s answer for its failure to comply with the prior notice of discovery and inspection. Defendant responded by moving for summary judgment dismissing the complaint on the ground that its proof established that it owed no duty of care to plaintiff regarding its inspections at the work site. Supreme Court determined that questions of fact precluded summary judgment and granted plaintiffs motion to compel discovery and inspection. This appeal by defendant followed.

Initially, it should be noted that although the alleged tort occurred in North Carolina and the issue concerning the existence of any duty owed by defendant to plaintiff appears to involve a conduct-regulating rule which would be governed by North Carolina law (see, Schultz v Boy Scouts, 65 NY2d 189, 198; Salsman v Barden & Robeson Corp., 164 AD2d 481), the parties and Supreme Court have assumed that New York law applies. An examination of North Carolina law reveals that the North Carolina courts apparently would never reach the duty issue because North Carolina’s workers’ compensation law bars an action by the insured’s employee against the insurer in these circumstances (Smith v Liberty Mut. Ins. Co., 449 F Supp 928, affd 598 F2d 616).* Accordingly, it is appro priate to look to New York law to resolve the question of whether defendant owed a duty to plaintiff.

The Court of Appeals explained in Nallan v Helmsley-Spear, Inc. (50 NY2d 507): "The formula for determining when 'one who assumes a duty to act, even though gratuitously, may thereby become subject to the duty of acting carefully’ has been articulated by Chief Judge cardozo as follows: 'If conduct has gone forward to such a stage that inaction would commonly result, not negatively merely in withholding a benefit, but positively or actively in working an injury, there exists a relation out of which arises a duty to go forward * * * The query always is whether the putative wrongdoer has advanced to such a point as to have launched a force or instrument of harm, or has stopped where inaction is at most a refusal to become an instrument for good’ ” (supra, at 522, quoting Moch Co. v Rensselaer Water Co., 247 NY 160, 167-168). Application of this principle requires plaintiff to show not only that defendant undertook to provide a service and did so negligently, but also that its conduct in undertaking the service somehow placed plaintiff in a more vulnerable position than he would have been had defendant never taken any action at all (see, supra, at 167-168). Plaintiff’s complaint does not allege, and there is nothing elsewhere in the record which suggests, that as a result of defendant’s inspections the work site was somehow less safe than it would have been had defendant never made the inspections or that plaintiff was otherwise placed in a more vulnerable position because of the inspections.

Assuming that defendant’s communications with its insured concerning the results of its safety inspections, coupled with the insured’s alleged reliance on those inspections, are sufficient to raise a question of fact as to whether defendant assumed a duty for the benefit of its insured, there is no basis for extending that duty to the insured’s employees, who are at best incidental beneficiaries of the inspections. "It is a generally accepted tenet of New York law that a duty directly assumed for the benefit of a particular person or entity does not extend to third parties who were not the intended beneficiaries of the subject undertaking” (Purdy v Public Adm’r of County of Westchester, 127 AD2d 285, 288, affd 72 NY2d 1; see, Calamari v Grace, 98 AD2d 74, 78; see also, Oathout v Johnson, 88 AD2d 1010). Irrespective of whether defendant intended to benefit its insured, defendant owed no duty which extended to plaintiff in the absence of any evidence that defendant undertook the inspections for the benefit of the insured’s employees (see, Kingsland v Factory Mut. Sys., 145 AD2d 965, 966, lv dismissed 74 NY2d 841).

In effect, plaintiff seeks to impose upon his employers’ workers’ compensation insurance carrier the duty to provide a safe place to work, but the insurance policy does not give defendant the responsibility or the authority to supervise and control either the manner in which the insured’s work was to be performed or the safety precautions and procedures to be used at the work site. Nor does the record contain evidence that defendant engaged in any active negligence at the work site which caused or contributed to the unsafe condition which resulted in plaintiff’s injury. In these circumstances, defendant is not responsible for plaintiff’s injuries (see, Russin v Picciano & Son, 54 NY2d 311, 316-317).

Even if the extension of a duty owed by defendant to plaintiff in these circumstances were not barred by any of the foregoing principles, it is our view that no such duty exists. It is the responsibility of the courts to fix the "orbit of duty” (Strauss v Belle Realty Co., 65 NY2d 399, 402), and in exercising this responsibility "not only logic and science, but policy play an important role” (De Angelis v Lutheran Med. Center, 58 NY2d 1053, 1055). Although "[d]uty in negligence cases is defined neither by foreseeability of injury * * * nor by privity of contract. * * * [considerations of privity are not entirely irrelevant in implementing policy” (Strauss v Belle Realty Co., supra, at 402-403). As the Court of Appeals recently explained: "While plaintiff is not bound by the provisions of a contract to which it is not a party, the limited scope of defendants’ undertaking is nonetheless relevant in determining whether a tort duty to others should arise from their performance of the contractual obligations. Moreover, it suggests the need to contain liability within the limits envisioned in the contract in order to keep these services available at an affordable rate” (Eaves Brooks Costume Co. v Y.B.H. Realty Corp., 76 NY2d 220, 227).

In its insurance policy issued to plaintiff’s employers, defendant undertook the obligation of paying workers’ compensation benefits to those employees who sustained injuries arising out of and in the course of their employment, a liability which has well-defined limits pursuant to the relevant workers’ compensation law (North Carolina’s in this case). Defendant undertook its regular inspection of the insured’s work site in order to reduce the risk of loss covered by its insurance policy. A reduced risk of loss clearly benefits the insurer who will be required to pay out less workers’ compensation benefits. The insured is also benefitted since its premiums are directly related to the risk of loss and fewer injuries at its work site means less disruption in the progress of the work. A safer work site also benefits the employees although, as noted above, there is no evidence in the record that defendant was motivated by an intent to benefit the insured’s employees. Imposition of liability upon defendant for damages resulting from plaintiffs work-related injuries exposes an insurer to a potential liability far in excess of that which it assumed in its insurance policy. Prudent insurers will remove any potential for exposure to this liability by deleting their work site inspection programs. The likely net result is decreased work site safety, increased work-related injuries, higher workers’ compensation insurance premiums and increased construction costs. On the other hand, a refusal to find any duty owed by defendant to plaintiff in these circumstances would not leave plaintiff without a remedy, since he is entitled to workers’ compensation benefits.

For each of the reasons set forth above, it is our view that defendant is entitled to summary judgment dismissing the complaint.

* Since defendant has not raised the defense of workers’ compensation as plaintiffs exclusive remedy in this case, there is no need to address the choice of laws question presented by the holding Smith v Liberty Mut. Ins. Co. (supra) (see, Roach v McGuire & Bennett, 146 AD2d 89).