The Court of Appeals of Michigan affirmed a judgment in favor of an insurer that denied a commercial property claim based on the absence of an automatic extinguishing system (AES) on the insured property. The case is 23771 Blackstone, LLC v. Conifer Ins. Co., 2023 Mich. App. LEXIS 8292 (Mich. Ct. App. 2023). Please note that this opinion is unpublished and therefore has limited precedential value.
A fire damaged a building owned by 23771 Blackstone, LLC (Blackstone) and insured through a commercial property policy with Conifer. The original policy had been purchased several years before the fire and was renewed annually. A "Protective Safeguards Endorsement" (PSE) was attached to the policy that required Blackstone to maintain a specific type of AES in the building as a condition of coverage. There was no AES installed in the building at the time of the fire.
Conifer denied Blackstone's subsequent claim for the fire damage based on the lack of an AES, referring to the policy condition stated in the endorsement. Blackstone then filed suit for breach of contract and equitable relief. In the complaint, Blackstone alleged the multiple inspections Conifer had conducted before the loss meant Conifer was or should have been aware there was no AES in the building, and allowing the denial to stand would be inequitable. Conifer argued Blackstone had had constructive knowledge that an AES was a required policy condition for coverage.
In response, Blackstone claimed the PSE was ambiguous because it referred to the AES as a policy condition but did not define the system. Therefore, Conifer was estopped from denying the claim. The trial court found the preclusion of coverage in the absence of an AES was unambiguous and, at any rate, the inspections Conifer had conducted were for their own benefit. Blackstone's other arguments were rejected, and the judges ruled in favor of Conifer.
On appeal, Blackstone pointed to similarities between its case and an earlier Michigan case, Westfield Ins. Co. v. Enterprise 522, LLC, 34 F. Supp. 3d 737 (E.D. Mich. 2014). In that case, an insurer denied a commercial property claim for a fire loss based on the lack of an automatic sprinkler system that was required by a safeguards endorsement. The Westfield court found the exclusion asserted by the insurer was ambiguous because the policy, as a whole, did not show that having an automatic sprinkler system was a required coverage condition. Though other coverages under the Westfield policy were explicitly conditioned on certain exclusions, there was no such condition attached to coverage for fire damage.
The judges pointed out that the exclusion in the Westfield case was found ambiguous because the exclusion didn't actually list a required protective device or service on schedule despite directions to maintain the devices or services referenced on the policy schedule. The PSE attached to the Conifer policy, on the other hand, required Blackstone to have a specific type of AES as a condition for fire coverage. Both the AES and the specific type of system were defined in the policy, and the court found none of the alleged ambiguity.
Blackstone also pointed out that regular inspection reports from Conifer had acknowledged the lack of an AES on the property. Like the trial court, the appellate judges noted that Conifer had carried out the inspections solely for its own benefit, not for Blackstone's. The inspection reports were not a modification, waiver, or abandonment of the otherwise clear language of the PSE that required Blackstone to install a specific type of AES.
The verdict for Conifer was affirmed.
Editor's Note: Though insureds don't often read their insurance policies, it is a contract they are agreeing to adhere to. Not reading the policy and being aware of its conditions can be detrimental to an insured. Policy conditions, as illustrated by this case, can make or break a claim. The endorsement on Blackstone's policy from Conifer made it clear that the building had to have an AES in order to qualify for coverage, down to the specific type of system. Since there was no AES system at all present on Blackstone's property, Conifer's denial of the claim was upheld.
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