A good crop of interesting cases this month. Which is great, because I've retired as of 7/1/17. I hope to continue following insurance and may contribute articles to the Insurance Advocate from time to time, but this will be my last regular column. I started in the insurance business by working Saturdays in my father's insurance agency when I was 12 years old. That was 75 years ago. Ave, atque, vale.
Protective Safeguard Endorsement: Who's It Protecting?
A fire severely damaged Jin Zun Zou and Hua Ying Gao's home in St. Paul, MN on November 24, 2013. The fire investigator, James Novak, arrived at the house just as the firefighters were winding up their work. Novak reported:
"In the hallway [of the main floor], I observed that the smoke detector had been disconnected prior to the fire and was nowhere to be found. Light smoke damage was observed throughout the hallway. The rear master bedroom suffered light smoke damage. The smoke detector in this room was also missing....The third bedroom had suffered light to moderate smoke damage throughout. There was no smoke detector in this room. Upon examination of the hallway closet, I found three smoke detectors on the shelf." (i)
Jin Zun Zou and Hua Ying Gao carried insurance with American Modern Home Insurance (AMI). They reported the claim, but AMI denied coverage.
The basis of AMI's denial was the Protective Safeguard endorsement that was part of the policy. In brief, the endorsement provided that the insurance company will not pay for loss caused by fire if, prior to the fire, the insured:
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 endorsement in complete working order.
The insureds sued. In the action that followed, both sides moved for summary judgment. The insurance company pointed to the fire investigator's report, but the insureds responded that there were other working fire detectors in the house and one in fact was what had awoken them. The court granted summary judgment to insureds. (ii)
Jin Zun Zou and Hua Ying Gao were fortunate that they had a working fire detector. First, because it may have saved their lives, and second it saved their insurance claim. Two points to note for us:
* Fire detectors can save lives.
* Protective safeguard endorsements can imperil coverage.
Let's look at the safeguard endorsement. The case doesn't identify the form that was used by AMI, but the language quoted in the decision is similar to that found in ISO endorsement PROTECTIVE SAFEGUARDS (CP 04 11 09 17).
The ISO form requires that the insured:
Maintain the listed protective safeguards over which it has control, in complete working order;
Actively engage and maintain in the "on" position at all times any automatic fire alarm or other automatic system listed in the Schedule; and
Notify the insurer of any suspension or impairment of any protective safeguard listed in the Schedule.
The endorsement adds an exclusion to the policy eliminating coverage for loss resulting from fire if the insured failed to comply with any condition set forth in the endorsement.
Five specific types of protective safeguards are listed:
* Automatic Sprinkler System
* Automatic Fire Alarm
* Security Service with a recording system or watch clock, making hourly rounds covering the entire building, when the premises are not in actual operation
* Service Contract with a privately owned...