An insured owns a shopping center with multiple shops. Several of the tenants are restaurants. The carrier has included the protective safeguard endorsement, CP0411 10 12, including B. 2:

B. The following is added to the Exclusions section of:

Causes Of Loss - Basic Form

Causes Of Loss - Broad Form

Causes Of Loss - Special Form

Mortgage Holders Errors And Omissions

Coverage Form

Standard Property Policy

We will not pay for loss or damage caused by or resulting from fire if, prior to the fire, you:

2. Failed to maintain any protective safeguard listed in the Schedule above, and over which you had control, in complete working order.

Q: Since failure to comply with the protective safeguards listed in the endorsement over which the insured has control would result in no coverage for a fire loss, how would the insured, as the landlord, be considered to have control? Wouldn't control be in the hands of the tenant, along with being compliant with the local fire marshall's requirements?

Response 1: I agree—the things that trigger exclusion are largely outside the control of the landlord. You need to either get this endorsement deleted or find a different carrier. It would be nearly impossible for the landlord to evaluate each tenant's safety equipment and it would be totally impossible for the landlord to know if a piece of that equipment was taken offline. 

Considering that fire is a leading cause of loss for restaurants, this endorsement is unacceptable for a landlord.

Response 2: I'm assuming this question is regarding automatic fire extinguishing systems over cooking areas. It is not uncommon for underwriters to request that all cooking exposures are adequately controlled. That condition would extend to lessors risks as well. 

While the landlord does not have physical control over the Ansul systems, the insured should seek to require tenants to maintain any equipment and require they provide evidence of frequent inspections and service by qualified contractors. The agent should contact the underwriter to clarify what will serve as proper evidence to maintain those systems. If the question is more to sprinkler systems, landlords are responsible for maintaining those systems.

Response 3: You say the carrier has included the protective safeguard endorsement. Do you mean that they are requiring it? Usually, this is offered as a possible discount if the customer wants it. 

From an errors & omissions standpoint, we recommend that agents never use this endorsement. The consequences are too great. Ask your carrier to remove the endorsement as soon as possible.

Response 4: Like all policy language, the endorsement needs to be read in its entirety. A landlord is in control of what type of fire protective equipment his tenants are allowed to install and most certainly should be aware of certain problems, such as when the exterior exhaust parts of the ventilating system are dripping cooking oils on the roof or down the side of the building. There may be other circumstances where an owner may be made aware of lack of maintenance by a tenant.

The insurer is putting a reasonable amount of a responsibility on the building owner to make sure their tenants are compliant. While the landlord is typically not responsible for maintenance of privately owned Ansul systems, they are not completely absolved from any responsibility either.

Response 6: You will need to speak with underwriter. I explain this condition as “insidious on a good day" to my clients.

This condition applies even if the system is undergoing repairs—when the insured is required to notify the agent, who notifies the carrier. One carrier went so far as to deny coverage even under the maintenance condition. The premium savings is not worth the risk.

Response 7: The endorsement says that the insured must maintain the protective safeguards listed in the endorsement schedule “over which you had control" in complete working order. The endorsement requires the insured to activate and maintain in the "on" position at all times any automatic system listed in the schedule. If the insured knows of a suspension or impairment of any protective safeguard listed in the endorsement schedule, the insured is required to notify the insurer. The coverage for fire is void if any of the conditions are not met.

This endorsement is on the landlord's policy, not the tenant's policy. Is it the tenant's responsibility to maintain the system or set the alarm? It's possible the tenant could fail to set the alarm and the exclusion may not apply. Does the insured have control of this? The carrier might pay a loss and then subrogate against the tenant. You should probably pose this question to the carrier. 

Response 8: You are on the right track. One solution is to either remove this endorsement or change the endorsement to mandate that the landlord require these provisions in its leases with restaurant tenants. You may also want to modify part B to specify that coverage will not apply to damage caused by fire if the insured landlord failed to include the requirements in a lease.

A more common scenario is when a tenant has a protective safeguards endorsement in their property insurance policy and an automatic sprinkler system is mandated. The problem is that the sprinkler system is usually under the control of the landlord in multiple tenant situations. Underwriters will usually remove the requirement once they are aware that the insured does not have control over the required system.

This question was originally submitted by an agent through the Big “I" Virtual University's (VU) Ask an Expert service, with responses curated from multiple VU faculty members. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.

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