Many policies include requirements that certain protective measures be taken for coverage to apply. For example, both personal and commercial lines policies often have a freezing exclusion that is waived if the insured makes reasonable efforts to maintain heat in a building or shut off the system. Other requirements impose an exclusion if a protective system is not maintained, for example, sprinkler system and burglar alarm system Protective Safeguards endorsements.

However, how these requirements are imposed can sometimes be baffling, often defying common sense. The following are real-life claims that illustrate both ends of the coverage/exclusion spectrum.

For example, a water line to an outdoor hot tub froze, causing damage to the hot tub equipment. The insurer initially denied the claim, citing the following exclusion in the homeowners policy:

Freezing of a plumbing, heating, air conditioning or automatic fire protective sprinkler system or of a household appliance, or by discharge, leakage or overflow from within the system or appliance caused by freezing. This provision does not apply if you have used reasonable care to:

(a)  Maintain heat in the building; or

(b)  Shut off the water supply and drain all systems and appliances of water….

Note that the exclusion clearly says that it does not apply if you have used reasonable care to “Maintain heat in the building.” Just as clearly, whether or not the dwelling was heated had absolutely no impact on whether or not an exterior water line/equipment might freeze. However, in policy analysis, common sense sometimes has no place. We were able to convince the adjuster, to his credit, that the policy clearly, conspicuously, and unambiguously covers freezing claims as long as heat is maintained in the building. This “non-common sense” reading can work for or against the insured, as evidenced by the following two claims.

In another claim, a business had property outside their building stolen. The commercial property policy had a Protective Safeguards endorsement attached for their burglar alarm system. The system, however, did not extend to the exterior storage yard, only the building itself. The endorsement though excluded ANY theft if the system was inoperable, as was the case that night. Needless to say, it wouldn’t have mattered if the system was operable or not for theft of property from the yard. The claim was not covered despite common sense saying that the operational condition of the burglar alarm was immaterial to the loss. Most endorsements of this type are warranties, not conditional representations, and are enforced literally.

In a similar situation, an inland marine policy on a mobile wood chipper had a requirement that an operational fire extinguisher be attached to the equipment at all times. The extinguisher was removed overnight for recharging so, of course, that’s the night that vandals damaged the equipment beyond repair. Because the extinguisher was missing, the carrier denied the claim even though (1) the damage was vandalism, not fire, so the presence of the extinguisher would have done nothing to prevent the loss, and (2) even if the damage had been due to fire AND the extinguisher was there, would the vandals have used it to put out the fire they started? Of course not, but the warranty exclusion prevailed.

The two most important points of this article are that Protective Safeguards endorsements must be read carefully and followed to the letter to insure coverage and common sense doesn’t always have a place in insurance policy interpretation. If you can avoid a Protective Safeguards endorsement without sacrificing a premium discount, that may save your insured an unexpected and inexplicable loss.

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Bill Wilson

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One of the premier insurance educators in America on form, coverage, and technical issues; Founder and director of the Big “I” Virtual University; Retired Assoc. VP of Education and Research from Independent Insurance Agents & Brokers of America. Reprint Request Information