Every so often someone sues an agency or an insurance company for damages based on allegations of negligence in conducting safety inspections or negligent loss control advice. The usual suit alleges that the agent or company breached a duty to properly advise of a particular hazard that caused a loss and that therefore the defendant agent or defendant insurance company is liable for the damages that the insured’s policy may not cover.
I am always surprised when I run across such suits because they usually have been brought by sophisticated business entities alleging substantial damages. I am not surprised that a business with uncovered losses may seek to craft a creative legal theory to recover from its agent or insurer some additional indemnity. What surprises me is how far some of these suits proceed without the defendant agency or insurer realizing that there is a Massachusetts statute directly on point that exempts agents and insurance companies from just such liability.
The fact that not everyone who should know about this statute does was brought home to me recently when I represented a witness summoned to a deposition. The deposition had been noticed in a subrogation suit between two insurance carriers where the subrogating career had paid a substantial water loss . The witness I represented had previously worked for the defendant insurer’s loss control department. The subrogating carrier’s claim was that the deponent’s former employer, a major insurer, had negligently inspected a rooftop cooling tank on the insured’s multistory office building. Soon after the subrogating carrier took over the risk but before it had thoroughly inspected the cooling tank, the tank ruptured and flooded the building causing major damage.
[i]nsurance companies which engage in accident prevention work…should be able to do so without incurring unlimited liability for failing to discover a hazard that some jury might think ought to have been discovered.” Massachusetts Supreme Judicial Court.
The new carrier paid the loss but filed this subrogation action against the prior carrier claiming that the prior carrier’s inspection had been conducted in such a negligent manner that the insured never was advised properly of the coolant tank’s risk of rupture and the resulting likelihood of a loss.
As I listened to the questions that the attorney for the subrogating carrier was asking to hopefully elicit facts to support his client’s claim and ,then later, when I spoke to the attorney for the defendant carrier as to the legal theory of the lawsuit, what surprised me was that neither insurance company seemed to know that G.L. c. 143, § 16A probably barred this subrogation suit.
In Massachusetts, insurance companies and their agents, as a matter of public policy, have no liability for negligent safety inspections. General Laws c. 143, § 16A, makes both agents and insurers who conduct any type of insurance related safety inspections or who provide any advisory services relating to loss control exempt from liability. The statute states:
The furnishing of, or failure to furnish, safety inspection or advisory services intended to reduce the likelihood of injury, death or loss shall not subject an insurer, its agent or employee undertaking to perform such services as an incident to insurance, to liability for damages from injury, death or loss occurring as a result of any act or omission in the course of such services…. (Emphasis added).
The second part of the statute does provide for liability in the limited circumstance where the insurer’s or agent’s safety advice actually increased the risk of loss:
This provision [§16A] shall not apply in the event the active negligence of the insurer, its agent or employee created the condition which was the proximate cause of injury, death or loss.
The Supreme Judicial Court has limited this exception for ‘active negligence’ by ruling in that “…the Legislature intended to exempt insurers from liability for safety inspections and for making recommendations to promote safety unless the insurer by its actions increases the safety risk at the facility inspected.” Hamel v. Factory Mutual Engineering Assoc., 409 mass. 33, 37 (1990). In particular, failing to give advice that alleviates an observed risk creates no liability because of this statute.
The Legislature passed this statute some time ago to remove any risk from agents or insurers conducting safety inspections or advising about loss control. As the Supreme Judicial Court stated: “[i]nsurance companies which engage in accident prevention work, the social desirability of which cannot be questioned, should be able to do so without incurring unlimited liability for failing to discover a hazard that some jury might think ought to have been discovered.” Matthews v. Liberty Mut. Ins. Co., 354 Mass. 470, 473 (1968).
Negligent inspection or failure to give loss control advice claims may arise infrequently, but when the do arise, they almost invariably involve substantial damage claims. While this statute may be obscure, it is a protective statute that an agent or a carrier does not want to miss when an uncovered insured, a severely injured plaintiff, or a subrogating carrier asserts a claim of negligent safety inspection or negligent loss control advice.
In the case of the deposition I attended, if the defendant carrier had done some legal research it could have saved itself, and everyone else, a lot of time, aggravation, and money. Had that carrier properly pleaded this statutory bar, in my opinion, there is no doubt that the subrogating carrier’s negligent inspection case would have been thrown out of court long before the deposition I attended ever occurred.
Hopefully, no reader of Agency Checklists will be sued on such a theory of liability, but if they are perhaps knowing about this statute will resolve that claim in short order.