Protecting Safeguards Endorsements (PSEs) are a unending supply for denials of property insurance coverage claims. I quoted an insurance coverage agent who warned towards these endorsements in Why Are Protecting Safeguard Endorsements Harmful? An Insurance coverage Agent’s Potential:
We have now been preaching for years that it is best to 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 techniques, sprinkler techniques, mud amassing techniques, and so forth., it is advisable be completely positive that these things are all the time 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 techniques are required beneath a coverage. It additionally reinforces that insurance coverage firms usually are not obligated to confirm a constructing’s compliance with coverage circumstances earlier than issuing or sustaining protection.
Salam Razuki owned a multi-tenant industrial property in San Diego that suffered a fireplace 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 automated 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, sometimes utilized in industrial kitchens, beneath 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 automated 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 automated 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 automated sprinkler system all through, which influenced AmGUARD’s underwriting resolution.
Razuki opposed the movement, arguing that the coverage language was ambiguous and that the Ansul system might moderately be thought-about a kind of automated 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 knowledgeable 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 fee 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 court docket granted abstract judgment in favor of AmGUARD, 1 and the Ninth Circuit affirmed. 2 The appellate court docket held that the coverage language was not ambiguous when learn as a complete and in context. It emphasised that P-1 and P-9G had been listed individually, every with distinct definitions. If P-1 had been meant to incorporate Ansul techniques, the court docket reasoned, then P-9G could be redundant, violating California’s guidelines of contract interpretation. The court docket additionally rejected using knowledgeable testimony to interpret the authorized which means of insurance coverage coverage language, noting that such issues are for the court docket, 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 obligation to confirm them by inspection. The court docket additional discovered {that a} partial fee and continuation of protection after the loss couldn’t create protection the place none existed beneath 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. Probably 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 to recast a constructing’s hearth suppression system as one thing it isn’t.
Second, it isn’t 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 observe the rule that duties after loss and exclusions could be waived by fee.
For property house owners and those that help them in managing their insurance coverage relationships, Razuki is a potent reminder to learn each phrase of a coverage and perceive the precise techniques it requires. When protecting safeguards are a part of the cut price, failing to satisfy these circumstances can lead to the whole lack of protection when it’s wanted most. Protecting safeguards usually are not secure. They’re harmful to protection.
Thought For The Day
“If you’re not prepared to danger the weird, 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).