Protecting Safeguards Endorsements (PSEs) are a unending supply for denials of property insurance coverage claims. I quoted an insurance coverage agent who warned in opposition to these endorsements in Why Are Protecting Safeguard Endorsements Harmful? An Insurance coverage Agent’s Potential:
Now we have been preaching for years that you must keep away from a Protecting Safeguard endorsement on a Property insurance coverage coverage in any respect prices.
In a nutshell, in case your insurance coverage provider attaches a provision to your Property insurance coverage coverage titled ‘Protecting Safeguard’ and lists both/or alarm methods, sprinkler methods, mud gathering methods, and many others., you should be completely certain that these things are at all times maintained in good working order and that they’re by no means impaired. If they’re impaired or don’t work correctly, the insurance coverage firm may, and certain will, deny what may very well be a serious declare.
A current case illustrates how strictly courts can apply these provisions and highlights the significance of understanding exactly what protecting methods are required underneath a coverage. It additionally reinforces that insurance coverage corporations aren’t obligated to confirm a constructing’s compliance with coverage situations earlier than issuing or sustaining protection.
Salam Razuki owned a multi-tenant business property in San Diego that suffered a hearth in October 2020. He had an insurance coverage coverage with AmGUARD Insurance coverage Firm, which contained a Protecting Safeguards Endorsement requiring the upkeep of an computerized sprinkler system, recognized within the coverage as “P-1.” The coverage outlined P-1 intimately and, notably, listed a special protecting safeguard, an Ansul system, usually utilized in business kitchens, underneath a separate designation labeled “P-9G.” When Razuki submitted his declare for damages exceeding two million {dollars}, AmGUARD denied it on the grounds that the constructing lacked the required computerized sprinkler system on the time of the hearth. Razuki filed swimsuit.
AmGUARD filed a movement for abstract judgment and argued that compliance with the PSE was a transparent situation precedent to protection. They offered proof exhibiting that the one hearth suppression current was an Ansul system serving a restaurant, not the building-wide P-1 computerized sprinkler system that the coverage explicitly required. It additionally identified that Razuki’s insurance coverage dealer had represented within the software that the constructing had an computerized sprinkler system all through, which influenced AmGUARD’s underwriting choice.
Razuki opposed the movement, arguing that the coverage language was ambiguous and that the Ansul system may fairly be thought of a kind of computerized sprinkler system as a result of it prompts in response to fireplace or smoke and is related to discharge nozzles and ducts, phrases additionally used within the PSE’s definition. He supported this interpretation with skilled testimony from a seasoned hearth investigator. He additionally raised problems with waiver and estoppel, pointing to AmGUARD’s failure to examine the premises earlier than the hearth, its cost of a $50,000 advance after the hearth, and the truth that it continued to insure the property till the coverage expired a number of months later.
The district courtroom granted abstract judgment in favor of AmGUARD, 1 and the Ninth Circuit affirmed. 2 The appellate courtroom held that the coverage language was not ambiguous when learn as a complete and in context. It emphasised that P-1 and P-9G have been listed individually, every with distinct definitions. If P-1 have been meant to incorporate Ansul methods, the courtroom reasoned, then P-9G can be redundant, violating California’s guidelines of contract interpretation. The courtroom additionally rejected the usage of skilled testimony to interpret the authorized that means of insurance coverage coverage language, noting that such issues are for the courtroom, not consultants.
Crucially, the appellate panel dismissed the argument that AmGUARD waived its defenses by not inspecting the property. It cited well-established California legislation holding that an insurer is entitled to depend on representations made within the insurance coverage software and has no obligation to confirm them by way of inspection. The courtroom additional discovered {that a} partial cost and continuation of protection after the loss couldn’t create protection the place none existed underneath the coverage, reaffirming that waiver and estoppel can’t be used to increase protection after a loss.
A number of classes emerge from this case. Essentially the most elementary is that policyholders should strictly adjust to protecting safeguards endorsements or face the chance of no protection when a loss happens. Courts won’t stretch definitions or entertain post-loss arguments that try and recast a constructing’s hearth suppression system as one thing it isn’t.
Second, it isn’t the duty of insurers to verify whether or not safeguards are in place or operational earlier than issuing a coverage. If a misrepresentation is made in an software, deliberately or inadvertently, the burden stays on the insured.
Third, even when insurers make post-loss funds or keep protection, this doesn’t equate to a waiver of their proper to disclaim claims if protection by no means existed. Many states do comply with the rule that duties after loss and exclusions might be waived by cost.
For property house owners and people who help them in managing their insurance coverage relationships, Razuki is a potent reminder to learn each phrase of a coverage and perceive the precise methods it requires. When protecting safeguards are a part of the discount, failing to satisfy these situations can lead to the whole lack of protection when it’s wanted most. Protecting safeguards aren’t protected. They’re harmful to protection.
Thought For The Day
“In case you are not keen to threat the weird, you’ll have to accept the extraordinary.”
—Jim Rohn
1 Razuki v. AmGUARD Ins. Co., No. 3:21-cv-01983 (S.D. Cal. Mar. 18, 2024).
2 Razuki v. AmGUARD Ins. Co., No. 24-2352 (9th Cir. June 6, 2025).