Praetorian Insurance Company (Praetorian), through
its authorized agent, Klein Insurance Services (Klein), wrote a hospitality
package policy covering Vantage Investments Inc.’s Best Western Hotel
(Vantage). The policy was issued contingent upon an inspection. Klein paid Site
Inspection, LLC to look over the hotel. After an inspection was performed, Praetorian
elected to continue coverage.
A few months after the inspection, a large fire
occurred at the hotel. A post-loss inspection (performed by a different firm) indicated
conditions at the hotel that varied substantially from what was reported by Site.
After Praetorian paid Vantage 3.25 million; it sued Site to recover the funds.
The insurer alleged that they would have terminated Vantage’s coverage if such
information had been found in Site’s inspection. Site, after Praetorian refused
its request to indemnify Site for any legal expenses, counter-sued. The
inspection company based its suit on its inspection disclaimer provision. Site also
sought a formal admission from the insurer regarding the latter’s history on
acting upon Site’s inspection information. A court ruled in favor of Site and
Praetorian appealed.
The record shows that Praetorian accepted an
inspection report on Vantage that included 10 recommendations to improve the
hotel’s loss exposures. The inspection was modified prior to being submitted to
Praetorian as a result of interactions between Klein and Site. Each page of
Site’s inspections included a disclaimer provision. The disclaimer stated that
Site provided the report merely for the purpose of underwriting, that it didn’t
warrant the accuracy of its information and that it was to be held harmless for
consequences arising out of the inspection’s use. Klein had never raised an
objection to the provision’s wording. The final inspection recommendations were
shared with Vantage. A separate inspection (made by a different service)
confirmed that Vantage complied with the recommendations and Praetorian
continued coverage.
After the fire loss, a post-loss inspection indicated
a dozen serious issues related to the alarm system. That inspection revealed
that the hotel’s alarm system was not in compliance with national codes, it was
not operational and Vantage did not have a service arrangement to monitor the
system. However, prior to the loss, the firm used by Vantage to perform annual
alarm inspections did NOT report any problems.
During a disposition, the Praetorian underwriter
who handled the Vantage submission indicated that he would have rejected
coverage if he had accurate information about the alarm system. Both the lower
and the appellant court viewed this information merely as a self-serving
response made after the fact of a loss.
Site, in its request for admissions, pointed out that Praetorian had, in
the past, received dozens of its inspections and had never used the information
to decline a submission or to terminate coverage that it had contingently
issued. Since Praetorian did not successfully raise a defense against the
information in the admissions request, the request was entered into the
official record.
The higher reviewed the facts of the record and
also looked to guidance from several cases it found to be precedents;
particularly in regard to the use and enforceability of hold harmless clauses.
The court found it compelling that Praetorian had never acted to take adverse
action to submissions based on inspection information. The court also found
that Site’s disclaimer provision to be non-ambiguous and enforceable. The lower
court decision to allow reimbursement to Vantage of its legal expenses and that
it could rely on its disclaimer (including the hold harmless wording) was
affirmed.
Praetorian Insurance
Company f/k/a Insurance Corporation of