Frankenmuth Mut. Ins. Co. v. FunF/X II, Inc.

• Decision Date: 29 April 2022
• Docket Number: CAUSE NO. 3:20-CV-76 DRL
• Citation: Frankenmuth Mut. Ins. Co. v. FunF/X II, Inc., 601 F.Supp.3d 330 (N.D. Ind. 2022)
• Parties: FRANKENMUTH MUTUAL INSURANCE COMPANY, Plaintiff, v. FUN F/X II, INC. and Cao Enterprises II, LLC, Defendants.
• Court: U.S. District Court — Northern District of Indiana

601 F.Supp.3d 330

FRANKENMUTH MUTUAL INSURANCE COMPANY, Plaintiff,

v.FUN F/X II, INC. and Cao Enterprises II, LLC, Defendants.

CAUSE NO. 3:20-CV-76 DRL

United States District Court, N.D. Indiana, South Bend Division.

Signed April 29, 2022

John F. Sullivan, PHV, Pro Hac Vice, Plunkett Cooney PC, Chicago, IL, Pamela A. Paige, Bradford S. Moyer, Plunkett Cooney PC, Indianapolis, IN, for Plaintiff.

Christina M. Phillips, Edward Eshoo, Jr., Merlin Law Group PA, Chicago, IL, for Defendants.

OPINION & ORDER

Damon R. Leichty, Judge On July 26, 2019, a fire destroyed an industrial warehouse in South Bend.This case poses the question whether Frankenmuth Mutual Insurance Company must provide insurance coverage to Fun F/X II, Inc.(a costume and theatrical supply retailer who used the warehouse) and Cao Enterprises II, LLC(the warehouse owner) for the fire damage.Frankenmuth insured both companies.¹

The answer hinges on whether Fun F/X maintained an automatic sprinkler system at the warehouse per the insurance policy and whether it provided notice to Frankenmuth of an impairment in the system.Frankenmuth seeks a declaration of no coverage.The parties filed crossmotions for summary judgment.The court grants summary judgment for Frankenmuth.

BACKGROUND

Frankenmuth issued a commercial policy to Fun F/X providing certain property and liability coverage from March 22, 2019 to March 22, 2020[ECF 1-1at 1].The policy included a protective safeguards endorsement (PSE)[id. 53].The PSE contained a condition and two exclusions [id. 53-54].As the condition to coverage, the policy required Fun F/X "to maintain the protective devices or services" identified in a schedule, which included an "automatic sprinkler system" and "related supervisory services"[id. 53].For purposes of this case, the policy defined an automatic sprinkler system as follows:

Any automatic fire protective or extinguishing system, including connected:

(1) Sprinklers and discharge nozzles;

(2) Ducts, pipes, valves and fittings;

(3) Tanks, their component parts and supports; and

(4) Pumps and private fire protection mains....[id. ].

The PSE also contained two exclusions.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 system] 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].

Victor Cao, the sole shareholder of Fun F/X and sole member of Cao Enterprises, testified that there was a functional automatic sprinkler system when the warehouse was acquired in 1999[ECF 45-3].He said the building had two risers, which he described as the vertical pipes where the water came into the building.He also said the building had two post-indicator valves, where one would shut off the water to the sprinkler system.He said the building had several hundred sprinklers at the time of the fire.He believed that the system's components were the same as those reported by Brandon Bumpus, the Legacy Fire Protection inspector who examined the building in 2016 and 2017.

Mr. Bumpus, who worked in fire sprinkler inspection service, testing, and installation, inspected the building on August 24, 2016[ECF 45-6, 45-7].His inspection paperwork reflected a total of fourteen system components that he tested according to National Fire Protection Association standards.These components included the alarm valve (which prevents backflowing), the post-indicator valves (a valve that can shut off the water supply), and the waterflow switch.He said there were two risers in the basement.He testified that he flowed the water for thirty seconds during his test, and that all components tested "okay."

The inspector testified that he would characterize the fourteen components he tested as the fire sprinkler system.He called the sprinkler system's first component the post-indicator valve.His inspection didn't include anything upstream of the post-indicator valve because, based on his testimony, that wasn't part of the system.He testified that his company only inspected or serviced the private fire protection waterlines that run into buildings when they are asked by the customer, but they cannot inspect anything underground.He said they"can just ensure that the valves are working properly and that water is flowing through the valves and that they close all the way."The waterline from the valve to the city's water main wasn't inspected.Although he testified that he didn't know which lines underground would be public or private, he said in his experience the city owns the waterline up to the property line where the control valve is located, and the property owner has responsibility for the system from the property line into the building.

Marlene Butts is a general adjuster at Frankenmuth[ECF 45-4].When asked about the list of components from the August 2016 inspection report, she testified that she had no reason to believe that the devices were not in place inside the building at the time of the fire.She said, to the best of her knowledge, the same components of the sprinkler system that were in place in 2016 were also in place at the time of the fire.

The warehouse was located at 1000 West Sample Street.Mr. Cao created a diagram of the property that shows a north-south water supply line located west of the property line for 1000 West Sample [ECF 45-3;ECF 45-12].He testified that he didn't think it made a difference whether that supply line was a private supply line or a public main; whether it was main or private, it was out of his control because it wasn't on his property.He admitted the north post-indicator valve also wasn't on the property located at 1000 West Sample.He had no idea why that valve wasn't there.

The inspector returned to the property on September 28, 2017[ECF 45-6].Mr. Cao was present.The inspector couldn't perform his testing because there was no water supply to the system.As he put it, the "water was shut off."The inspector testified that the system wouldn't work without water pressure.He told Mr. Cao that there was no water pressure to the system [id. 30;see alsoECF 45-3at 50("He told me that there wasn't water pressure in the system.")].

While at the property on September 28, 2017, the inspector called South Bend Water Works.Mr. Cao was standing next to him during the phone call.The inspector explained to the city that there was no water pressure in the sprinkler system at 1000 West Sample, but he never received an explanation as to why.The inspector told Mr. Cao that Mr. Cao needed to follow up with the city because the city said it didn't shut the water off.

The inspector went back to the building the next day.He planned to see if the shutoff valve from the city to the building had been closed.He wasn't able to find the shutoff valve or find out how the water service to the sprinkler system was cut off.Still today he doesn't know.

After the inspector told Mr. Cao that there was no water in the system and that he couldn't get an answer from South Bend Water Works, Mr. Cao called South Bend Water Works to let the agency know that the water had been shut off and that the agency needed to get the situation resolved.Mr. Cao also contacted the fire inspector to see if he knew what happened.

Robert Krizmanich, a fire inspector for the City of South Bend, thereafter called Mr. Cao in November 2017 to conduct a fire inspection at 1000 West Sample [ECF 47-7].Mr. Cao says he called the fire inspector back on November 15, 2017(48 days after the 2017 inspection by Mr. Bumpus) and recorded the telephone conversations from three short calls that day using his phone [ECF 45-3, 47-8].Mr. Cao first called the fire inspector and told him that the city turned off his sprinkler water.The fire inspector said the city might have turned the water off for the neighbor to the west.The fire inspector called Mr. Cao back a few minutes later and said he could drive over to the property to check it out so that way he would have more information when he talked to the people from South Bend Water Works.The fire inspector then called Mr. Cao again a little over an hour later.He told Mr. Cao that he talked to the property owner next door, and the neighbor's best recollection was that the city turned off the water in March or April of that year.Mr. Cao thanked the fire inspector for the information and said he would get with the water company to see what he could find out.

Mr. Cao called South Bend Water Works sometime that same day and talked to an unidentified representative.He says he was told again that the agency didn't have any information about the shutoff, but the agency would look into it and get it resolved.Mr. Cao acknowledged that not having water pressure to the sprinkler system would cause a problem in the event of a fire.

Scott Horvath, the manager of meter service for South Bend Water Works, testified that water mains are owned by the city and private lines are owned by the customers [ECF 47-3].²He said the city in 2017 performed a cut and cap on all of the lines to 1008 West Sample next door to the warehouse at 1000 West Sample.He testified that the city didn't have a water main that ran between the warehouse at 1000 West Sample and the adjacent property; he called it a private line.He didn't deny that the city may have done a cut and cap on what he was calling a private line.

Darric Cole, a job leader at South Bend Water Works, confirmed that the water department cut and capped two six-inch private water mains running north off the city's public water main on April 26, 2017at 1008West Sample[ECF 47-4].He said, at the time, it was believed that all of the structures at 1008 West Sample as well as the building at 1000 West Sample were scheduled for or in the process of demolition.The six-inch...