A commercial property policy includes a Protective Safeguards endorsement. The insured's policy specifies that an automatic sprinkler system must be maintained. If a fire occurs and it is discovered that the sprinkler system was intentionally shut off by an employee prior to the fire, what will be the likely outcome regarding coverage for the fire damage?
- AThe insurer will only pay if the employee was acting outside the scope of their employment.
- BThe policy will pay a reduced amount due to the increased hazard.
- CThe policy will pay the full claim, as the fire was a covered peril.
- DCoverage for the fire damage will be denied due to breach of the Protective Safeguards endorsement.
Show answer & explanationAnswer & explanation
Correct answer: D. Coverage for the fire damage will be denied due to breach of the Protective Safeguards endorsement.
A Protective Safeguards endorsement requires the insured to maintain certain protective devices or services, such as an automatic sprinkler system. If the insured fails to maintain these safeguards, and that failure contributes to the loss (e.g., intentionally shutting off the sprinkler system before a fire), coverage for the loss will typically be denied.
Why the other options are wrong
- A. The employee's intent or scope of employment is secondary to the insured's responsibility to maintain the safeguard.
- B. Reduced payment is not the typical outcome for a breach of a Protective Safeguards endorsement; denial is more likely.
- C. Failure to maintain stipulated safeguards voids coverage for related losses.
Protective Safeguards Endorsement
An endorsement requiring the insured to maintain specific protective devices or services (e.g., sprinkler systems, alarms) as a condition for coverage. Failure to maintain these safeguards can lead to denial of coverage for losses related to the unprotected peril.
- Mandates maintenance of specific safety features.
- Breach can lead to coverage denial.
- Insurer must be notified if safeguards are impaired.
Memory trick: Protective Safeguards are 'Must-Haves' for coverage, or 'No-Pay'.