I remember stories about photo processing managers contacting police because of the contents of the photos, like pornography, child pornography etc. Perhaps if someone were to come to my shop (if I had had a shop) with a film of something that I would have felt was indication of immediate danger (like preparing a bomb etc), I would have contacted authorities too (although I have no idea how I would have been able to figure that out).
But refusing to even process photos before you even know what is on the film? Can that be legal? OK, the shop owner is an idiot (see the first link). But where should the legal border be in such cases?
Now links: case prepared, case closed, store going out of business.