Restaurant owners not entitled to coverage for fire

A federal appeals court has upheld a lower court’s ruling in favor of a Markel Corp. unit, stating restaurant owners were not entitled to coverage for a fire at their Seattle restaurant because of false statements they had made in their policy application.

Markel Corp. unit United Specialty Insurance Co. issued a policy covering Michelle and Scott Simpson’s family business, the Roosevelt Ale House, according to Wednesday’s ruling by the 9th U.S. Circuit Court of Appeals in United Specialty Insurance Co. v. Shot Shakers Inc.; Scott Simpson; Michelle Simpson.

The policy included a “Concealment, Misrepresentation or Fraud” condition that voided coverage in any case of fraud relating to coverage, the covered property, interest in the covered property or a claim, according to the ruling.

Following a fire at the restaurant, United Special denied coverage based on this condition in the policy.

The restaurant and Simpsons filed suit in U.S. District Court in Seattle, which ruled in the insurer’s favor, and was upheld by a unanimous three-judge appeals court panel.

The Simpsons had represented in their insurance application that their fire extinguishing system covered all cooking surfaces and deep fryers and that their hoods, ducts and filters were cleaned at least every six months or more frequently.

“However, appellants were aware that these statements were false,” the 9th Circuit ruling said. “Their hoods, ducts, and filters were not cleaned at least every six months, and their system did not protect all cooking areas and deep fryers,” it said.

United Specialty also denied coverage under a “protective safeguards” policy endorsement that required the insureds to maintain an automatic sprinkler system and fire alarm in conformity with a defined schedule.

This in turn required a fully functional fire extinguishing system over the entire cooking area with an automatic shut-off, the ruling said.

“Appellant failed to raise a material issue of fact regarding coverage denial under this exclusion because the fire suppression system did not cover the broiler that was the source of the fire,” the ruling said.

“In addition, Appellants had ample notice through inspection reports to make the necessary adjustments to the fire suppression system,” the ruling said, in affirming the lower court’s decision.

Attorneys in the case did not respond to requests for comment.