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Commercial Property |
Ambiguous Term |
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Protective Safeguards |
Moral/Morale Hazard |
French King Realty, Inc.
(French King) owned real property and operated French King Restaurant
(Restaurant). A Kidde HDR 50 dry chemical fire suppression system (system) was
installed in the kitchen before French King took ownership of the restaurant in
1974. Interstate Fire and Casualty Company (Interstate) issued a commercial
lines insurance policy to French King for the period April 3, 2005 to April 3,
2006. The policy contained a Protective Safeguards Endorsement (PSE) that
required Restaurant to maintain protective devices or safeguards listed in the
schedule in complete working order and inform Interstate if the system became
suspended or impaired.
Interstate issued coverage
based in part on remarks made in Restaurant's application for coverage.
Restaurant acknowledged that the previous carrier non-renewed because it required
a "wet" Ansul System. Restaurant also stated that there were no
uncorrected fire code violations and that the property did not "have any
outstanding building, sanitary, fire, or other code violations which have been
brought to the attention of the property owner in writing by a state, city, or
town inspector." However, Kidde Fire Systems had issued a bulletin to its
distributors that stated that it no longer supported the kind of system in
Restaurant, due to its age, lack of replacement parts, and its recommendation
that such systems should be upgraded to a wet chemical system. As of February
11, 2002, Kidde representatives could no longer inspect, service, recharge, or
repair such systems.
Restaurant received numerous
notifications over the next two years that informed it that the system no
longer met current NFPA requirements, was not in accordance with the
manufacturer's UL listing, was non-compliant, and was functionally
non-operational. In June 2005, the building inspector notified Restaurant that
he could not issue a certificate of inspection until the system was fixed. This
meant that Restaurant would not be able to renew its liquor, food, and health
licenses when they expired in January 2006. Even at this, Restaurant did not do
anything to resolve the matter before a fire occurred on October 12, 2005 and
the system failed to function.
Restaurant demanded payment
for the loss on February 28, 2006. Interstate declined to pay. In a letter
dated April 4, 2006, Interstate stated that its reason to decline coverage was
because Restaurant failed to comply with the PSE in the policy. Restaurant
brought action to determine coverage for the fire loss. The trial court entered
summary judgment in favor of Interstate on Restaurant's claim for coverage and
Restaurant appealed.
The Appeals Court of
Massachusetts determined that there were three issues at the heart of the case:
After exhaustively
researching various terms and the coverage form (especially with respect to the
PSE), the Appeals Court held that:
Coverage was not
barred by a breach of an ambiguous requirement that Restaurant
"maintain" a fire suppression system, where Restaurant had a fire
suppression system in place (although it was not operational). However:
As a result, the exclusions
prevailed, even though the term "maintain" was ambiguous and favored
Restaurant, not Interstate. The trial court's judgment was affirmed.
Appeals Court of
Massachusetts, Franklin. French King Realty, Inc., doing business as French
King Restaurant v. Interstate Fire and Casualty Company. No. 10-P-1165. Argued
March 4, 2011. Decided June 9, 2011. 79 Mass.App.Ct. 653, 948 N.E.2d 1244