APPARENT LIMITATIONS MAY BE CIRCUMVENTED BY CLOSE READING OF POLICY STIPULATIONS OR IF THEY CONTRAVENE STATE STATUTES.

We have all learned that the first job of a public adjuster when he contracts with a client is to read the Insured’s policy — the whole policy — to understand the coverages and limitations it provides. Lately, we are seeing more coverage limitations set forth in a variety of policy endorsements. Endorsements are designed to limit or enhance the coverages provided in the primary text of the policy. One such endorsement found in many insurance policies is the protective safeguards endorsement. A protective safeguard refers to a monitored fire alarm to provide prompt notification of a fire in the building or a monitored burglary alarm system to provide notice of a break in. Under the typical protective safeguards endorsement, the insured is required to maintain these safeguards in operable condition as a condition of coverage for a loss.

In pertinent part, the policy states: “As a condition of this insurance, you are required to maintain the appliable protective devices or services for fire, denoted by symbols P-1, P-2, P-3, P-4, P-5, P-8 or P-9; or for burglary and robbery, denoted by symbols P-6 or P-7, as designated at each premises by symbol in the Declarations.” The exclusion goes on to state: “We will not pay for loss or damage caused by or resulting from fire if, prior to the fire, you: Knew or should have known of any suspension or impairment in any protective safeguard … or failed to maintain any protective safeguard at each premises by symbol in the Declarations and over which you have control, in complete working order …”

In layman’s terms, if you do not have a fire or burglar alarm system connected to an alarm service or it is inoperable, the policy will not cover the loss or damage to that property. One caveat is the knowledge requirement as in “known or should have known” and the other is “control” meaning you have the legal access to the property to assure the alarm system is in working order. Another caveat to consider is whether this endorsement violates the required coverage under the state’s statutory policy.

Our point in drafting this article is to make you aware that under certain circumstances this policy provision may not be legal and enforceable. To determine this, we must first look to the states’ statutory policy. Many states have adopted the “165-lines” of the New York Standard Fire Policy as the statutory policy for their state. The statutory policy sets forth the minimum coverage requirement for fire and/or other coverages in the state. In Arizona’s adoption of this policy the legislature stated as follows: “Under A.R.S. § 20-1503(A),  “No policy of fire insurance covering property located in this state shall be made, issued or delivered unless it conforms as to all provisions and the sequence thereof with the basic policy commonly known as the New York standard fire policy, edition of 1943. Such policy is designated as the Arizona standard fire policy.” It goes on to state, “Furthermore, any insurance policy in Arizona which contains any condition or provision not in compliance with the requirements of this title [Title 20, Insurance] … shall be construed and applied in accordance with such conditions and provisions as would have applied had such policy, rider or endorsement been in full compliance with this title.” A.R.S. § 20-1118.

The “165-lines” provides for no limitations to coverage for failure to provide a protective safeguard at the property. While courts may have differing opinions on this subject, we have recently argued in my state of Arizona that since the insured did not have knowledge or control and the statutory policy does not include this requirement, this policy endorsement is unenforceable in the state of Arizona.

On another claim, we encountered an endorsement, which states that contractor’s overhead and profit is not payable until repairs are completed, and the insured incurred and paid the costs of a general contractor. The argument in this case was that this policy provision violated the terms of the statutory policy, which provides for the minimum coverage required in the state and that the law was well-settled in Tritschler v. Allstate that contractor’s overhead and profit must be paid on the actual cash value of a loss; therefore this endorsement was not unenforceable.

To determine if this argument is viable in your state, one must look to the state’s statutory policy. If the legislature in your state has adopted the 1943 edition of the New York Standard Fire Policy as that state’s statutory policy, then you must look to the specific language in the adoption of this treatise. Some states have language that separates fire as a cause of loss from other perils, whereas others do not. If it is adopted generally, then the 165-lines applies to not only fire but other perils as well. It is important to think outside the box when reading insurance policy endorsements to determine if the policy meets the state’s minimum requirements for coverage. If you live or work in a state that has adopted the “165-lines” then scrutinize each policy endorsement against the coverages provided by the statutory policy to verify that the endorsement does not infringe upon the minimum coverage  required in the statutory policy.

As published in Consumer Claims Journal – Spring/Summer 2022

Skipton and Associates, Inc.