A Protective Safeguards Endorsement to property insurance makes it a condition of coverage that the protective safeguards cited in the endorsement (such as an automatic sprinkler system or night watch guard) be in operation at all times except when the insurer has been notified of the impairment in protection.
The agency procured a condo policy, which included a Protective Safeguards Endorsement, for their client. A fire occurred at the condo, but the carrier disclaimed it due to the Protective Safeguards Endorsement and a lack of sprinklers. While the agent was aware of the lack of sprinklers, they completed the online application indicating the structure was 100% sprinklered. The carrier’s application did not have a place to indicate a central alarm system.
The agent noted the policy contained the protective safeguards endorsement and contacted the carrier about removing the endorsement. The agent advised stated that the matter was discussed with the carrier’s underwriter who told them “not to worry about it” – and that it was acceptable to indicate sprinklers as a workaround to provide the client with a discount they were entitled to for having a central alarm system. The underwriter indicated they would simply note it in the system. Removal of the endorsement was not discussed further.
The agent had discussed this with the carrier’s underwriter by phone, but did not pursue any written documentation. It wasn’t until the day of the fire that the agent emailed the carrier noting that the system discount on the policy for sprinklers was in error and should be removed.
The agent’s E&O coverage paid $675,000 for this claim.
What are some lessons that can be taken from this claim?
- Accurately complete online applications based on information provided by the client.
- Request modifications to the policy from the carrier in writing and follow up frequently until the changes are complete. Advise clients that coverage changes are not in effect until the carrier confirms them.
- Immediately memorialize verbal discussions with the carrier in writing.
- Point out protective safeguard endorsements to the client.