Fire Insurance, not Fire Assurance
The implications behind a burnin’ burden of liability – and why you should care.
Having insurance is generally viewed as an assurance when it comes to disasters. However, as demonstrated by a recent case that hit the 7th U.S. Circuit Court of appeals, having insurance isn’t always enough.
On September 28, 2017, a fire inspector arrived at a warehouse in South Bend, IN to perform a routine set of tests on the building’s sprinkler system. The building – a 50,000 square foot factory and storage facility constructed in the late 1800s – was owned by Victor Cao of Cao Enterprises II, LLC. Cao was utilizing three floors of the building for his costume and theatrical supply retailing company, Fun F/X II, Inc. But as the inspector began the fire protection inspection and testing procedures, he found that there was no water supply to the system. He noted that the “water was shut off,” instructing Mr. Cao to follow up with the city and Water Works to pursue a resolution.
Less than two years later, fire sprinklers failed to activate as a fire decimated that historic warehouse. Amongst various sentimental personal items, Cao lost thousands of dollars in inventory in the blaze, reporting a whopping total of $7 million dollars in losses. Thankfully, Cao had taken out a commercial insurance policy from Frankenmuth Mutual for Fun FX just three months prior. When Cao filed a claim under the policy, Frankenmuth filed a lawsuit seeking a declaration that it did not owe coverage. The policy specified that Fun FX was required to maintain various pieces of fire protection equipment, including an “automatic sprinkler system” and “related supervisory services” [id. 53]. According to court documents:
“Frankenmuth was not required to pay for loss or damage caused by or resulting from fire if, before the fire, FUN F/X either ‘[k]new of any suspension or impairment in [the automatic sprinkler systems] and failed to notify [Frankenmuth] of that fact’ or ‘[f]ailed to maintain [the automatic sprinkler system], and over which [Fun F/X] had control, in complete working order’ [id. 54].”
If the owner had followed through and contacted a professional fire protection contractor, this may have been a different story.
After the fire wreaked havoc, it was discovered that the pipe supplying water to the sprinkler system was mistakenly cut and capped when a neighboring building was demolished in early 2017. If Cao had brought in a fire protection contractor for a follow-up inspection, it’s likely that this problem would’ve been brought to light before disaster struck. “Realistically, that building should’ve been on fire watch,” says Jamil Shamoon, President of Symons Fire Protection, Inc., emphasizing the intent of keeping up with proper inspections, testing, and maintenance procedures as specified in NFPA 25 and state fire protection laws. Shamoon believes that teamwork between fire protection contractors, fire departments, and the city is crucial to the protection of lives and properties in disasters like these. “If a customer does their part, the burden of liability will fall on us – not them.”
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Such a great reminder to always keep up to date with inspections testing and maintenance of fire protection systems. Thank you Symons Fire!