E&O Tip: PROTECTIVE SAFEGUARDS – A Longstanding Source of E&O Claims

Commercial Property and Businessowners Policies (BOP) often contain a protective safeguards endorsement. Protective safeguards can include an alarm system, sprinkler system, security service, and a commercial cooking exhaust and extinguishing system. While having these systems in place can result in a discount for clients, they can also result in an uncovered claim if they are not maintained.

Why is This a Concern for You?

Clients will often pursue the agent after discovering a claim will not be covered. Frequently, the client will indicate that they provided different information to the agent than what was provided to the carrier. Alternatively, they will claim the agent failed to advise them of the requirements surrounding protective safeguards necessary to avoid a coverage denial.

What Should You Do?

•  Err on the side of caution. Leave these safeguards off when generating an initial estimate if you don’t have clear information indicating that they are in place. It is better to advise the client that additional discounts may be available if they have safeguards in place than to assume they are to present a lower premium. 
• Have the client confirm in writing that the safeguards exist. Whether it’s a signed application or simply an email, it’s critical to document it. Did you fill out the application for the client? Have them initial the questions surrounding safeguards in addition to signing the application.
• When quoting, advise clients to review the provisions surrounding protective safeguards. Suggested disclaimer language:

“This quote includes a protective safeguards endorsement, which requires specific protective devices or systems (such as fire alarms, sprinkler systems, or burglar alarms) to be fully installed, operational, and properly maintained as a condition of coverage.

Failure to maintain these safeguards, or to notify the insurance company of any known impairment, malfunction, or suspension, may result in denial of coverage for losses related to the affected peril.

Please review the endorsement carefully and ensure that all required systems are in place and function as required. If you have any questions or concerns about these requirements, or if you are unsure whether your current systems comply, please contact us before binding coverage.”