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Insurer not required to pay for fire where sprinkler was off


An insurer who was not informed the water had been shut off to a building that was later destroyed in a fire is not obligated to pay under its coverage, a federal appeals court ruled Wednesday, in affirming a lower court ruling.

Mishawka, Indiana-based Fun F/X II Inc., a costume and theatrical supply retailer, stored its inventory in a South Bend, Indiana, warehouse owned by Cao Enterprise II LLC, according to the ruling by the 7th U.S. Circuit Court of appeals in Chicago in Frankenmuth Mutual insurance Co. v. Fun F/X II Inc. and Cao Enterprises II LLC.

In September 2017, a fire inspector found the building’s sprinkler system had no water pressure. Cao’s owner spoke to the fire inspector and South Bend Water Works on the issue without result, but the query was not pursued, according to the ruling.

A fire destroyed the warehouse and all its contents in July 2019 and Fun F/X claimed more than $7 million in losses. It was later discovered that the city apparently had mistakenly cut and capped the pipe supplying the sprinkler system in April 2017 when the building next door was demolished.

Cao filed a claim under an insurance policy issued by Frankenmuth, Michigan-based Frankenmuth, under which both Fun F/X and Cao were named insureds.

Frankenmuth filed suit in U.S. District Court in South Bend, seeking a declaration it did not owe insurance coverage in the case because of a policy exclusion for failing to inform the insurer of impairments in protective safeguards.

The court ruled in the insurer’s favor, and was affirmed by a three-judge appeals court panel.

Under the facts in the case “and the policy’s plain language, we agree with the district court that the exclusion bars coverage,” the ruling said.

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