Protecting Safeguards Endorsements (PSEs) are a endless 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 service attaches a provision to your Property insurance coverage coverage titled ‘Protecting Safeguard’ and lists both/or alarm programs, sprinkler programs, mud gathering programs, and so on., you must be completely positive that this stuff 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 might, and sure will, deny what may very well be a significant declare.
A latest case illustrates how strictly courts can apply these provisions and highlights the significance of understanding exactly what protecting programs are required below a coverage. It additionally reinforces that insurance coverage corporations should not obligated to confirm a constructing’s compliance with coverage situations earlier than issuing or sustaining protection.
Salam Razuki owned a multi-tenant industrial 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 distinct protecting safeguard, an Ansul system, sometimes utilized in industrial kitchens, below 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 go well with.
AmGUARD filed a movement for abstract judgment and argued that compliance with the PSE was a transparent situation precedent to protection. They introduced 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 utility that the constructing had an computerized sprinkler system all through, which influenced AmGUARD’s underwriting determination.
Razuki opposed the movement, arguing that the coverage language was ambiguous and that the Ansul system might fairly be thought-about a kind of computerized sprinkler system as a result of it prompts in response to fireside or smoke and is related to discharge nozzles and ducts, phrases additionally used within the PSE’s definition. He supported this interpretation with professional 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 an entire 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 programs, the courtroom reasoned, then P-9G could be redundant, violating California’s guidelines of contract interpretation. The courtroom additionally rejected the usage of professional testimony to interpret the authorized which 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 utility and has no responsibility to confirm them via inspection. The courtroom additional discovered {that a} partial cost and continuation of protection after the loss couldn’t create protection the place none existed below 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 likelihood of no protection when a loss happens. Courts is not going to stretch definitions or entertain post-loss arguments that try to recast a constructing’s hearth suppression system as one thing it’s not.
Second, it’s not the accountability 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 utility, deliberately or inadvertently, the burden stays on the insured.
Third, even when insurers make post-loss funds or preserve 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 will 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 programs it requires. When protecting safeguards are a part of the cut price, failing to satisfy these situations may end up in the entire lack of protection when it’s wanted most. Protecting safeguards should not secure. They’re harmful to protection.
Thought For The Day
“If you’re not keen to danger the bizarre, you’ll have to accept the atypical.”
—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).
