Improve Property Loss Recovery With a Protective Safeguards Review

SEPTEMBER 3, 2024

Many business owners understand endorsements are often used to expand coverage for their benefit. The frequently utilized protective safeguards endorsement, however, benefits the insurance company, and can work against the policyholder when a loss occurs.

While this endorsement can lower your premium, it’s primarily used by underwriters to put protection requirements on the property policy — requiring businesses to maintain unclearly defined levels of fire protection, system maintenance, and security.

Most business owners don’t know that this endorsement leads to coverage ambiguity. Since the insurance company determines the adequacy of the insured’s protections, maintenance, and security measures of the property at the time of the loss, coverage can be denied when these protective safeguard requirements aren’t met.

What’s Important to Know About Protective Safeguard Endorsements

Many insurance agents fail to discuss the requirements this endorsement imposes on insureds, and this simple lack of communication can lead to claim denials. If the insured fails to satisfy the required levels of fire protection, maintenance, or security, costly uninsured losses can occur.

Even if a protective system is disabled for maintenance or repairs, many of these protective endorsements stipulate that the insurance company must be notified. Simply failing to notify the insurance company can lead to costly out-of-pocket losses — up to the value of the property — if a loss occurs during that period of repair or maintenance.

The Solution

USI Insurance Services evaluates the policy to determine if a protective safeguard endorsement is included. We help our clients understand what their obligations are to fulfill these requirements — then, if necessary, negotiate with the insurance company to remove the endorsement or try to place the coverage with another one that will.

The Impact

By doing this, you will be protected from uninsured losses up to the policy limits.

Example: A property insurance policy with a protective safeguard endorsement required a central station automatic fire alarm to be present in the building. While the building did have fire alarms installed, they were not monitored by a central station. In the event of a fire, the insurance company could deny the claim. By removing the endorsement, USI prevented the possibility of the insurance company denying a claim based on the insured’s noncompliance; this represented a $1.5 million exposure (based on the value of the building).