September 19, 2021

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Protective Safeguard Provisions Part II: Control, Maintenance and the Idea of Due Diligence

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In a previous blogpost, The Applicability of the Protective Safeguard Provision, and Common Situations that Would Effectively Render the Provision Meaningless, I discussed a commonly inserted condition in property insurance policies: the protective safeguard provision.

When property insurance policies are issued, insurers may add in provisions that seek to lessen the risk of loss. One way an insurer may do so is by including what is called a “protective safeguard provision.”

In my previous blogpost, I cited an example of what these types of provisions usually look like. The provision below shows how insurers will generally draft such a condition:

The Premises Alarm or Fire Protection System

***

The following condition is added to the Policy:

You are required to maintain, in complete working order, all protection or security systems about which you have told us and over which you have control.

Failure to do so will void any coverage otherwise available under this policy for fire, lightning, theft, attempted theft, vandalism and malicious mischief, and any ensuing loss caused by an intentional and wrongful act committed in the course of theft, attempted theft, vandalism and malicious mischief.

The following exclusions are added to the Policy:

1. We do not cover loss or damage caused by theft, attempted theft or vandalism and malicious mischief, and any ensuing loss caused by an intentional and wrongful act committed in the course of theft, attempted theft, vandalism and malicious mischief, unless, all the physical protections and all the security systems you have told us about are in full and effective operation whenever the dwelling is left unattended.

2. We do not cover loss or damage caused by fire unless all the fire protection systems such as an alarm system and/or automatic fire protective sprinkler system you have told us about are in full working order at all times.

Exclusions 1. and/or 2. will not apply if:

a. prior to the date of loss or damage, you had no knowledge of the suspension or impairment that ceases the full and effective operation of the system; or

b. prior to the date of loss or damage, you advised us of the suspension or impairment that ceases the full and effective operation of the system.

To put it simply: the provision means that if you, the insured, suffers damages to your property by way of a theft, the insurer will not be liable for the damages if you failed to maintain an operational alarm system, which could have potentially protected both you from these damages. In the previous blogpost, the issue I presented was:

What if the property thief is the one who caused the alarm to be inoperable? Essentially, the insurers could deny coverage for the claim, citing to the inoperable alarm system and the condition under the policy. But this type of coverage decision would theoretically give the insurer an out in these common situations.

This blogpost will not go back into various court findings and concurrent causation arguments like the last one did, but rather, will discuss two specific trigger words in these provisions that may be used to justify an insured’s due diligence: “control” and “maintain.”

In the protective safeguard provision above, pay close attention to the first paragraph, which states:

You are required to maintain, in complete working order, all protection or security systems about which you have told us and over which you have control.

Those words are oddly specific and are usually not defined anywhere in the policy. There have been numerous cases across the country, in which an insured seeks to use these two words to argue either that they maintained the alarm system, or that they did not have control over the alarm system – and therefore, the provision should not be used as a justification for denial when the alarm system is later found to have been inoperable during their loss.

Courts that have entertained such an argument have discussed this idea of “maintaining” and “controlling” an alarm system. These courts use the combination of these ideas together with the facts to opine that, an insured should not be denied coverage under this condition if it is shown that the insured used due diligence in keeping up with their alarm system – even if was found to be inoperable. Some courts faced with a protective safeguard coverage dispute have emphasized and considered that even though the alarm system was inoperable at the time of the loss, the totality of the facts show that the insured used due diligence in maintaining the alarm system.1

In S.F.I v. United States Fire Insurance Company, a foreman negligently failed to activate a burglar alarm system. After the insured suffered a vandalism loss, the insurer denied coverage for failure to comply with the protective safeguard condition of the policy after the alarm was found to be inoperable at the time of loss. The language of the protective safeguard provision in question was almost identical to the example provision I cited above. The language provided that “it is a condition of this insurance that the insured shall maintain so far as within his control such protective safeguards as are set forth by endorsement hereto.” The S.F.I court analyzed the facts of the case and opined that the insured did everything reasonable to assure the system was operational. Therefore, the court found that one failure to turn the system on would not bar recovery.

Another case which analyzed whether an insured “maintained” a safety system or not is Commercial Union Insurance Company v. Taylor.2 In Taylor, the policy contained an increase-of-hazard provision, which looks and operates similarly to a protective safeguard provision. The facts of the case showed that the sprinkler system on the insured’s property was not operating at the time of the fire loss. The insurer denied the insured’s claim for alleged failure to maintain the sprinkler system, citing the increase-of-hazard provision.

In its unanimous opinion affirming the trial court judgment for the insured, the Georgia Court of Appeals stated:

The trial court found that “[n]either named insured [Huey or Larry Taylor] knew the sprinkler had been turned off until after the fire had started. There was no evidence that the employee turned the sprinkler off with the authority of any named insured … One of the named insureds visually inspected the sprinkler system on a periodic basis. There is absolutely no indication of any wrongdoing on the part of any named insured. The Court finds that the insureds have acted with due diligence in maintaining the sprinkler system.

In making its decision, the Taylor court looked at the terms “control” and “knowledge” together, and in conjunction with the idea of due diligence:

The appellant alleges the trial court failed to make a sufficient finding of fact on whether the loss resulted because the hazard was increased by a means within the control and knowledge of the insureds. We cannot agree. In Commercial Union Fire Ins. Co. v. Capouano, 55 Ga. App. 566 (190 S. E. 815), this Court construed the term “control and knowledge” and held that “control” presupposes knowledge and that it would be unreasonable to hold that a person had control of a thing of which he had no knowledge. Thus, in effect, finding that there could be no “control” without “knowledge.” … The Court finds that the insureds have acted with due diligence in maintaining the sprinkler system.” We hold that these findings of fact on the issue of the increase in hazard being within the control and knowledge of the insureds to be sufficient for a determination of this issue.

The Taylor and Capuano courts follow the idea that it would be unreasonable to hold that an insured had control over an alarm or sprinkler system if the facts of the claim dispute show that they used due diligence in maintaining its operations. Basically, these courts agree that just because an alarm or sprinkler system was inoperable at the time of the loss, an insured’s claim should not automatically be rendered invalid and give the insurer grounds for declining coverage.
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1 S.F.I. v. United States Fire Ins. Co., 453 F. Supp 502, 507 (M.D. La. 1978).
2 Commercial Union Ins. Co. v. Taylor, 312 S.E.2d 177 (Ga. App. 1983).

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