App. Div: Detrimental Reliance Exception to Espinal Rule Can Be Inferred From Conduct of Contracting Party.

In All Am. Moving & Stor., Inc. v. Andrews, a property damage action arising out of a warehouse fire, defendant Allstate Sprinkler Corp entered into an inspection services contract with the tenant D’Agostino Supermarket. Allstate moved to dismiss the plaintiff-owner’s action arguing that, under the Espinal v. Melville Snow Contractors decision, its contractual obligation to the tenant did not give rise to tort liability in favor of a third party.

In affirming the denial of the motion, the First Department carefully analyzed the Espinal rule. There are three exceptions to the Espinal rule: 1) where a contracting party launches a force or instrument of harm, 2) where the party enters into a comprehensive and exclusive service agreement, and 3) where a third party has detrimentally relied on the continued performance of the contracting party’s duties.

The Appellate Division agreed that the first two exceptions where inapplicable. However, the Court held there was a question of fact as to whether the plaintiff, a beneficiary of the contract, detrimentally relied on Allstate’s continued performance of its contractual duties. In doing so, the Court pointed to Allstate’s admitted failure to inspect the sprinkler system for months before the fire and its failure to report to the owner that it had found the sprinkler system shut off during several inspections. Thus, rather than point to evidence that the owner had in fact relied on the contracting party, the Court utilized evidence of the contracting party’s wrongdoing to infer that such reliance existed.

Special thanks to Bill Kirrane for his contributions to this post.  For more information about this post, please contact Bob Cosgrove at rcosgrove@wcmlaw.com.