The plaintiff brought the action against the defendant, the insurance company, to recover the loss of its commercial property after a natural gas explosion and an ensuing fire damaged the property. The insurance contract provided that the plaintiff was required to maintain its automatic sprinkler system.
The defendant denied coverage, claiming that the plaintiff did not satisfy a condition under the insurance policy when the plaintiff failed to properly maintain the automatic sprinkler system.
The testimony at the trial revealed that the plaintiffâ€™s employees were directed to plug at least three sprinkler heads that had been placed over a newly installed oven in the plaintiffâ€™s building. The plaintiff was seeking to prevent the buildingâ€™s automatic sprinkler system from activating over the area containing the newly installed oven because of the high heat generated by the oven.
The high-heat oven operated at 375 degrees Fahrenheit and activated the sprinkler heads in the area immediately in front of the oven. The plaintiff tried to correct the problem with new sprinkler heads, but was unsuccessful.
To further avoid disruption in production, the plaintiff directed its employees to remove and replace several of the sprinkler heads with metal plugs or caps. An independent insurance adjuster testified that he found 13 capped sprinklers.
The investigation further revealed that the fire had originated in the area of the oven. The insurance company was never notified of the capping until after the fire. The jury returned a verdict in favor of the insurance company.
The Appeals Court determined that the defendant was entitled to assume that the automatic sprinkler system in place and being maintained at the time of the renewal of the policy was being maintained between the last renewal and the date of the loss. The court pointed out that parties to an insurance contract should act in good faith.
The plaintiff is not a lay person or unknowledgeable in the field of insurance. The plaintiff was familiar with the terms of the previous insurance policies and knew that an alteration to the sprinkler might affect the acceptance or continuation of the risk.
The court indicated it is patently ridiculous to assume that the defendant would have renewed the policy without modifying the terms if it had known about the capping, or if it at least had a chance to determine whether the insured met its underwriting guidelines.
The court discussed many other issues that were raised but affirmed the order of the circuit court, which ruled in favor of the defendant insurance company.