A protective safeguards endorsement generally requires the insured to keep a particular safeguard at the insured premises in working order. If a loss occurs because a protective safeguard was not operational, the policy may not provide coverage.
Although the Insurance Services Office, Inc. (ISO) Protective Safeguards endorsement is written to apply to various types of protective safeguards, this article will focus on automatic sprinkler systems.
Operative Language of the Endorsement
The ISO Protective Safeguards endorsement adds the following language to the Commercial Property Conditions Form:
- As a condition of this insurance, you are required to maintain the protective devices or services listed in the Schedule above.
- The protective safeguards to which this endorsement applies are identified by the following symbols:
“P-1” Automatic Sprinkler System, including related supervisory services.
The endorsement also adds the following language to the Exclusions section of the Commercial Property Conditions Form:
We will not pay for loss or damages caused by or resulting from fire if, prior to the fire, you:
- Knew of any suspension or impairment in any protective safeguard listed in the Schedule above and failed to notify us of that fact; or
- Failed to maintain any protective safeguard listed in the Schedule above, and over which you had control, in complete working order. If part of an Automatic Sprinkler System is shut off due to breakage, leakage, freezing conditions or opening of sprinkler heads, notification to us will not be necessary if you can restore full protection within forty-eight hours.
Main Aspects of the Endorsement
From the viewpoint of the insured business, endorsements are usually added to policies to provide additional coverage. The Protective Safeguards endorsement, however, does not provide any additional coverage. Instead, the endorsement adds an additional condition with which the insured must comply. If the insured does not comply with the condition, the exclusions then operate to eliminate fire coverage.
Let’s consider an example of a restaurant with an automatic sprinkler system. An operational sprinkler system is an effective safeguard that is designed to substantially mitigate the spread of fire. The insurer can afford to offer a lower rate for fire insurance based on the premise that the sprinkler system is fully operational. The insurer can endorse the policy to include a protective safeguards endorsement that identifies the sprinkler system. In return, the insured benefits from a reduced fire insurance premium due to the endorsement being added to the policy.
Problems arise when a sprinkler system is not operating properly and a fire loss occurs. A fire that occurs under these circumstances could result in severe damage. If the policy contains a protective safeguards endorsement, the potential consequences to both the insurer and the policyholder may be significant.
Loss Control Inspections
What if a loss control inspection reveals that a sprinkler system is not operational, yet the insurer does not take immediate steps to suspend fire insurance coverage until it is? This is the problem that the court considered in Century Mut. Ins. Co. v. YCAW5, LLC.1 This case illustrates the insured’s burden to satisfy the condition to maintain a sprinkler system, the exclusion for fire coverage if the insured fails to maintain the sprinkler system in accordance with the policy, and the effect of the knowledge that the insurer gains through its loss control inspections prior to the fire.
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