We spend a lot of time warning our clients about aspects of their policy that could render certain coverages unviable.
Today, we’re going to talk about a clause that could suspend your entire policy – without you being aware of it. The protective safeguard endorsement is overlooked by 99.9% of clients – and if you aren’t aware of its implications, it could cost you 100% of your coverage.
The bad news? You could be stuck without insurance at an extremely difficult time. The good news? We’re going to teach you how to avoid the problem. Let’s dive in.
What’s a Protective Safeguard?
Protective safeguards are any required precaution against common problems that might result from a certain type of tenant. For example, a restaurant might be required to have sprinklers installed above the cooking area, or a bank might be required to have a security system and security guards.
Fire alarms and burglar alarms would also fall under this category, but it’s a near-infinite list, and the protective safeguards necessary for any given tenant will be decided by the insurance company and written into your policy. This is called a protective safeguard endorsement.
Many property owners love protective safeguard endorsements, because some policy providers offer a discount for ensuring those protections. It’s not a guarantee, since sometimes a protective safeguard endorsement is a requirement, but a voluntary one often comes with that discount. After all, an insurance company feels a lot more confident covering a jewelry store that has lots of protective safeguards than it would covering that same jewelry store with no alarm system and no secure safe to keep the most valuable goods.
However, protective safeguards are often neglected by property owners after they’re installed. Fire alarms whose batteries have run out are a common example, but every protective safeguard can easily become defunct and useless for its purpose – which is when it becomes problematic for the policy holder.
What Are the Potential Problems with Protective Safeguard Endorsements?
If you own a building and fail to:
- Check your protective safeguards regularly for any lapses or impairments
- Inform your insurance company immediately about any lapse or impairments
- Maintain and repair the protective safeguard as quickly as possible when a problem is noted
Then your insurance can be completely suspended.
Sounds a little harsh, but take your jewelry store example above. Let’s say that jewelry store has a state-of-the-art alarm system, and the insurance company has offered a hefty discount in the policy because they feel very confident that any attempted thefts will be thwarted.
Now imagine that a break-in occurs, and the thief manages to get away with almost the entire stock of the store – because the alarm didn’t go off.
As you can imagine, that won’t fly with any insurance provider. To avoid these problems, you need to take steps to ensure all your protective safeguards are working as they should.
What If You Didn’t Know About the Problem?
This can get very tricky. The wording of these policies says that you must ‘maintain’ the protective safeguard, and usually the interpretation is that you are responsible for checking the protective safeguard on some kind of regular schedule that is reasonable to the safeguard you have in place.
You should assume that any fault in your system might, potentially, cause your whole policy to be suspended. It is better to take overly-cautious measures to check your protective safeguards as often as possible than to be caught with no explanation for why they didn’t work when needed.
What Happens If I Fail to Use a Protective Safeguard?
It is a pretty heavy penalty to the insured if your protective safeguard fails to act as it should, so it’s worth monitoring your protective safeguard as closely as you can. If you put off checking up on your protective safeguard regularly, you could see your entire policy voided because you weren’t compliant – even if you weren’t aware of your lack of compliance.
It is a big risk, and if you’re not able to personally check that your protective safeguard is working properly, it might not be worth it. For many property owners, however, the discount offered for using protective safeguards is so substantial that the risk is worth the potential pitfall.
Some insurers will also refuse to insure certain types of buildings or businesses without those protective safeguards, so it may not be avoidable. Whatever your reason for agreeing to protective safeguard endorsements, remember this: it is always in your best interest to make sure those protective safeguards are working perfectly at all times.