In November 2023 a Michigan Court of Appeals rejected a fire claim by a marijuana growing operation, under a commercial property insurance policy against fire and other hazards, because the policy unambiguously required an automatic extinguishing system described in the policy as including sprinklers and discharge nozzles and related equipment.

The policy included a Protective Safeguards Endorsement (PSE) which referred to a P-9 system as “the protective system described in the schedule”. The schedule itself described the automatic sprinkler system required. The court found that the policy required the insured to maintain a “P-9” system as a condition of insurance, and the policy defined both a P-9 and an AES (Automatic Extinguishing System) with sufficient clarity to avoid confusion especially as in this case where the plaintiff did not have any sort of automatic sprinkler or fire extinguishing system in place.

An argument that the insurer should be estopped (prevented) from asserting the provision because it had arranged inspections of the property and knew that there was no sprinkler system in place was rejected. Under Michigan law, equitable estoppel is not a cause of action. The inspection reports were prepared solely for the insurer’s benefit, not for the insured plaintiff.  There was no evidence of any representation, admission or silence by the insurer, intentionally or negligently, that induced the insured to believe that they had insurance without installing the system. The insured plaintiff could not rely on the inspection reports to modify, waive, or abandon the otherwise clear language of the PSE. As a third try the insured plaintiff alleged that there was a mutual mistake because no requirement for an AES should have been in the policy because both parties knew there was no such system. The court said that the mere fact that the insured and the insurer may have been aware that the property did not have an AES does not establish that the parties mutually understood and agreed that an AES was not required as a condition of coverage. The policy unambiguously required the property to have an AES as a condition of coverage and there was no evidence that the insurer ever intended or agreed that an AES was not necessary. There was no evidence of a mutually shared mistake.

Similar principles, with a similar outcome, should be applied in South Africa.

[23771 Blackstone LLC v Conifer Insurance Company case no 364333 in the State of Michigan Court of Appeals]