The opinion of the court was delivered by: DUFFY
Plaintiffs, an insurance company and its underwriter, wrote and issued a "Difference in Conditions" insurance policy covering, among other things, flood damage at various locations owned by the Gladding Corp. including one warehouse in Oneonta, New York. The premium for such insurance was in excess of $ 35,000.
Defendant inspects premises for various insurance companies including plaintiff. At the behest of the plaintiff, defendant inspected the Gladding Corp. premises in Oneonta, New York. Plaintiff paid defendant $ 17.50 (plus $ 1.00 for a photograph of the premises) for a written inspection report. This report did not disclose that Gladding Corporation's Oneonta premises were between 400 feet and 1,000 feet from the Susquehanna River. Indeed, the defendant's report of inspection had a negative answer to the question "Is there any danger of flood from such creek, river, bay, or other body of water?"
The Susquehanna flooded and the storm sewers backed up causing flood damage to the Gladding Corporation, Oneonta plant in excess of three hundred thousand dollars. Plaintiffs paid Gladding Corporation under the insurance policy and by this action seeks to recover that amount from the defendant.
The defendant now moves for summary judgment pursuant to Rule 56(a) of the Federal Rules of Civil Procedure. A more detailed discussion of the facts is necessary in order to resolve this motion.
In late August of 1976, the plaintiffs executed a binder on the various properties owned or leased by the Gladding Corporation. This business was brought to the plaintiff by Alexander & Alexander, a large New York insurance brokerage house. The so-called "Difference in Conditions" policy was issued by the plaintiff to the Gladding Corporation on October 13, 1976 and included Gladding's Oneonta plant. The policy contained a specific provision requiring 60 days' notice of cancellation and there was no specific provision permitting deletion of a particular location.
Approximately two months after the policy had been issued, plaintiffs requested the defendant to perform an inspection of the various premises which it had insured, including the Oneonta plant. The inspection of the Oneonta premises was performed on January 17, 1977. The inspector, employed by the defendant, made no mention of the river on his report. Apparently the route taken by the inspector to the Gladding Corporation facility did not take him within sight of the river. He does not remember, nor does the representative of the Gladding Corporation who was interviewed remember, whether the question of proximity to the river arose during the inspection. In any event, the inspection report does not indicate that the river was between 400 feet and 1,000 feet of the plant. In response to interrogatories, plaintiffs have stated that the Susquehanna River is visible from the Gladding premises only from the roof of the building.
The report was received by the plaintiff on February 8, 1977. Nothing was done at that time. The flood in question occurred on March 14, 1977, but the plaintiffs took no action concerning the policy until April 7, 1977. A new endorsement of the policy was thereafter perfected and coverage was terminated at the Oneonta location on May 1, 1977.
It is plaintiffs' contention that if the written report received from the defendant had been totally accurate in all respects it would have terminated the flood coverage of the policy at the Oneonta location. Since the inspection report, however, was inaccurate, plaintiff seeks in this action to hold the defendant liable for its loss under the insurance policy charging defendant with breach of warranty and negligence.
By its answer, the defendant denied certain allegations and included, among its affirmative defenses, allegations that the report contains a statement which provides in part:
This report made from observation and interview, and concerns such conditions and practices as were observed and considered at time of call; it is not intended to indicate that there are no other exposures . . . . We do not assume any legal liability due to misinformation given our inspector, nor for inaccuracies, human error etc. . . .
It appears that all of the inspection reports from the defendant to the plaintiff over the years have contained a similar disclaimer. Indeed, one of the defendant's booklets, entitled "Outlines of Operations", produced from the files of Mutual Marine is more explicit:
An imprint on our audit and inspection reports indicates that we make our reports from such information and records as are made available by the insured or his representative. Audits are not made by certified public accountants, nor are our inspections civil, construction, electrical, or chemical engineers' inspection reports. These are made at a very moderate fee, and we cannot accept any legal liability for error or omission. We do, of course, agree to remake audits or inspections without charge if an error is made.
The defendant's motion for summary judgment is based on three arguments:
1. The plaintiff could not have cancelled the risk under the policy between the receipt of the inspection ...