An insurer that was not informed that 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, upholding a lower court ruling.
Mishawaka, Indiana-based Fun F/X II Inc., a retailer of costumes and theatrical supplies, stored its inventory in a warehouse in South Bend, Indiana, owned by Cao Enterprise II LLC, according to the ruling by the 7th U.S. Circuit Court of Appeals at Chicago i Frankenmuth Mutual insurance Co. v. Fun F/X II Inc. and Cao Enterprises II LLC.
In September 2017, a fire inspector found that the building’s sprinkler system had no water pressure. Cao̵
7;s owner spoke to the fire inspector and South Bend Water Works about the matter to no avail, but the matter 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 had apparently accidentally cut and capped the pipe that feeds 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 that it did not owe insurance coverage in the case because of a policy exclusion for failing to notify the insurer of lapses in coverage.
The court ruled in favor of the insurance company and was affirmed by a three-judge court panel.
Under the facts of the case “and the plain language of the policy, we agree with the district court that the exception bars coverage,” the ruling said.
Attorneys in the case did not respond to requests for comment.
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