Policies issued by three insurers covered one of several building of a manufacturer for fire, the Extended Coverage hazards, vandalism, and malicious mischief, and sprinkler leakage. Each policy contained an Automatic Sprinkler clause reading as follows:

“This policy being written at a rate based on the protection of the premises by the sprinkler system, it is a condition of this policy that, insofar as the sprinkler system and water supply therefor are under the control of the insured, due diligence shall be used by the insured to maintain them in complete working order, and that no change will be made in the said system or in the water supply therefor unless immediate notification is given to the Rating Bureau. Permission, however, is hereby given in case of break, leakage, or the opening of sprinkler heads, to shut off the water from so much of the sprinkler system as may be imperatively necessary, it being a condition of this policy that the Rating Bureau will be immediately notified and the protection restored as promptly as possible.”

The building and its contents were damaged by fire on October 5, 1970. Because of a broken valve which was not promptly repaired, the sprinkler system in the building was completely inoperative at the time of the fire and had been inoperative since the middle of June 1970.The insured had not advised the Rating Bureau that the system was not in working order. The insurers denied liability, asserting a breach by the insured of the quoted policy condition.

The insured asserted that the insurers waived the violation by their failure to return unearned premiums after they discovered it.

The court concluded that the insured violated the provision of the policies requiring an operative sprinkler system and that the policies became void as to the Fire insurance on the building that burned. It stated that the insurers did not waive the breach of the policies by the insured because they were not required to return premiums. It quoted 16 Indiana Law Encyclopedia, Insurance 127 as follows: “Where a policy becomes void through the conduct of the insured after the risk attaches, he is not entitled to a return of the premium.” Judgment was rendered for the insurers with costs against the insured.

The Buehler Corporation V. The Home Insurance Company Et Al. United States District Court, Southern District of Indiana, Indianapolis Division. No. IP 71-C-520. April 27, 1973. CCH 1973 Fire and Casualty Cases 824.