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Failure to Fulfill Protective Safeguards Endorsement Defeats Fire Claim  

See the full blog post at https://zalma.com/blog

In Frankenmuth Mutual Insurance Company v. Fun F/X II, Inc. and Cao  Enterprises II, LLC, No. 22-1933, United States Court of Appeals,  Seventh Circuit (February 28, 2023) the insurer rejected a fire claim  because the named insured knew, and didn\'t tell, Frankenmuth, that the  sprinklers in his warehouse had no water, a material condition precedent  of the policy.  Fun F/X II, Inc. and Cao Enterprises II, LLC (collectively "FUN\\u201d) sought  insurance coverage after a warehouse fire. The relevant insurance  policy issued by appellee Frankenmuth Mutual Insurance Company provides  that it does not cover losses if prior to the fire the policy holder  knew of a suspension or impairment in an automatic sprinkler system yet  failed to notify Frankenmuth of the issue. Based on this policy  exclusion, the district court granted summary judgment for Frankenmuth. 

 UNDISPUTED FACTS  FUN is a costume and theatrical supply retailer that stored its  inventory in a warehouse in South Bend, Indiana owned by Cao Enterprises  II, LLC. Victor Cao is the sole member of Cao Enterprises II, LLC and  the sole stockholder of FUN. Cao purchased the warehouse in 1999. It  then had a Functional sprinkler system with a working supply of water.  Cao replaced the sprinkler heads around 2004 and hired inspection  companies for routine system testing. In 2016, an inspector from Legacy  Fire Protection found no problems.  

THE FIRE  A fire destroyed the warehouse and all of its contents on July 26, 2019.  FUN claimed losses exceeding $7 million. The sprinkler system still did  not have any water flowing to it. After the fire, the source of the  problem was discovered:  The city apparently had cut and capped the pipe supplying the sprinkler  system in April 2017 when the building next door was demolished. Cao was  told that the worker cutting the pipe incorrectly believed the FUN  warehouse was being demolished as well.  Frankenmuth Mutual Insurance Company\\u2019s policy contained an exclusion  providing that Frankenmuth "will not pay for loss or damage caused by or  resulting from fire if, prior to the fire, you: 1. Knew of any  suspension or impairment in any protective safeguard listed in the  Schedule above and failed to notify us of that fact."