American Home Assurance Co. v. Harvey’s Wagon Wheel, Inc.
United States District Court for the District of Nevada
398 F. Supp. 379 (1975)
Harvey’s Wagon Wheel, Inc. (Harvey’s) (defendant) operated a casino and restaurant business. The building that housed Harvey’s business was equipped with automatic sprinkler systems in the casino area and in the restaurant area. Harvey’s had started some reconstruction in both of these areas. During the reconstruction, Harvey’s purchased business-interruption insurance from American Home Assurance (American Home) and from another, unnamed insurance company (collectively, plaintiffs). As part of the bargaining for the insurance contracts, Harvey’s obtained premium rates that were about one-eighth of the premium rates that applied to buildings that were not equipped with automatic sprinkler systems. The insurance contracts had endorsements (also called warranties) to confirm that the automatic sprinkler system resulted in a reduced premium. In addition, the endorsements stated, in all capital letters, that a condition of the contract was that Harvey’s would use due diligence to keep the sprinkler system in working order to the extent Harvey’s had control of the system. Further, the endorsements stated that no change could be made in the sprinkler system or in the corollary water supply without the insurance companies’ written consent. At some point while the insurance contracts were in effect, Harvey’s shut off the water supply without the written consent of the insurance companies. The building caught fire. The sprinkler system in the restaurant area was functioning, and the restaurant area was not damaged by the fire. However, the sprinkler system in the casino area was not functioning. The casino area was damaged by the fire, and as a result there was interruption in the casino business. Harvey’s submitted an insurance claim for business-interruption loss. American Home and the other insurance company then filed a lawsuit seeking a declaratory judgment that the casino business interruption was not covered by the insurance contracts.
Rule of Law
Holding and Reasoning (Thompson, J.)
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