Property & Casualty Insurance Exam (National Portion)Property InsuranceMedium
A commercial property policy includes a Protective Safeguards endorsement (e.g., an automatic sprinkler system). If the insured fails to maintain the sprinkler system in working order, and a fire occurs, resulting in significant damage, what is the most likely outcome regarding claim payment?
- AThe claim will be denied due to the breach of the Protective Safeguards endorsement.
- BThe claim will be paid in full, as the fire was a covered peril.
- CThe insurer will pay a reduced amount based on the percentage of negligence.
- DThe claim will be paid, but with an increased deductible.
Show answer & explanationAnswer & explanation
Correct answer: A. The claim will be denied due to the breach of the Protective Safeguards endorsement.
A Protective Safeguards endorsement requires the insured to maintain specific protective devices (like sprinkler systems or alarms) in working order. Failure to do so, especially when the failure contributes to the loss, is a breach of policy conditions and will typically result in the denial of the claim.
Why the other options are wrong
- B. The fire itself may be a covered peril, but the failure to maintain protective safeguards is a condition breach that negates coverage.
- C. Property insurance is generally not based on comparative negligence but on policy conditions and exclusions.
- D. An increased deductible is not the typical consequence for a breach of a protective safeguards endorsement; denial is more likely.
Protective Safeguards Endorsement
A commercial property endorsement that requires the insured to maintain specific protective devices (e.g., automatic sprinklers, fire alarms, security services) in working condition as a condition of coverage. Failure to comply can lead to claim denial.
- Requires maintenance of specified protective devices.
- Breach of condition can result in claim denial.
- Commonly includes automatic sprinkler systems, fire alarms, security guards.
- Aims to reduce the likelihood or severity of loss.
Memory trick: Endorsements ADD or CHANGE the rules.