DENIALS BY ENDORSEMENT
In their never-ending battle to reduce expenses, insurance companies appear to have found a new weapon that allows them to accept premiums without adequate underwriting inspections and still protect themselves against probable losses. Increasingly, they are using endorsements that eliminate coverage for conditions that should have been discovered on inspection and required to be corrected as a condition of coverage.
The subject endorsements are not new, but their use or abuse has become a new weapon in the carriers' arsenal to defeat claims. In the past, an underwriting inspection would generate a report and the prospective insured would be advised of the remediation required as a condition to the insuring agreement. More recently, however, thorough inspections are not made and recommendations are not transmitted. The insurer simply includes an endorsement buried deep within the policy forms that limits or excludes coverage in the event that certain features are not present.
I have recently encountered two such endorsements: EPB-150, Building Upgrades Requirements and BP 0430 0702, Protective Safeguards. Be wary of these as they apply to your insureds.
The building upgrades endorsement covers the electrical, plumbing and roof systems of commercial buildings and allows the carrier, by endorsement, to require that these systems be modernized. The carrier gets to pick and choose whatever sections of the endorsemnt it wants to apply. The peril is that many times the insured is not aware of the endorsement or does not appreciate how the endorsement will work in practice. This endorsement allows the insurer to deny certain claims originating in the systems listed. Among other hidden pitfalls, roof drains on flat roofs have to be kept clear of debris and maintained in operational order. This sounds reasonable enough, but means that a claim for loss caused by a clogged roof drain will be denied.
This endorsement has special applicability to older buildings. If your insured owns or occupies such a premises, be sure to search for this endorsement on the declarations page to see if you are up against it, and if so, to get proof from your insured that the systems comply. Failure to comply will limit or exclude many losses and may affect your handling of the claim. For instance, the roof option excludes coverage for loss or damage caused by or resulting from water damage originating from the roof. It does not exclude loss or damage caused by or resulting from wind!
The protective safeguards endorsement allows the carrier to impose requirements they choose from a list that includes an automatic sprinkler system, an automatic fire alarm system or a security service. Failure to comply with these requirements negates coverage for fire loss if the insured knew of the suspension or impairment of a system and failed to notify the insurer or failed to maintain any such system over which it has control. While this would be understandable if the insured received a premium reduction for having these kinds of protective safeguards, that is not always the case. In fact, some carriers have become so cavalier in attaching these endorsements to policies that agents sometimes miss them, even if they do not apply. In that case, the carrier can baldly justify denial of the claim and refer the insured to his agent who did not obtain the proper coverage. In New Jersey, the agent may very well be on the hook for failure to obtain the proper coverage, but enforcing this will entail protracted litigation (perhaps including a claim for reformation of the policy), expense and delay before your insured recovers. Your insured needs experienced legal counsel to handle this type of claim.
By now, I am fairly confident that you all have heard of the New Jersey Supreme Court's decision in Willingboro Mall Ltd. V. 240/242 Franklin Avenue, LLC, (decided August 15, 2013) requiring that all settlement agreements reached as a result of mediation must be reduced to writing and be signed by the parties in order to be enforceable. Better practice has always been to write down the terms of the settlement and have the parties sign the agreement before they leave the mediation. It is amazing how recollections dissipate when an unhappy party breathes some fresh air after a mediation! If you or your insureds participate in mediations, whether for Sandy or otherwise, be sure that any agreement reached is WRITTEN and SIGNED, regardless of the lateness of the hour or the exasperation of the parties. As a matter of practice, remember that the opportunity for reflection often leads to buyer's remorse and the results of the mediation are likely to be undone when a reluctant party reconsiders the result. A signed written agreement prevents this frustration.
As always, if you or your insureds encounter problems in these areas, please feel free to contact me at 973-538-4100 or by email at firstname.lastname@example.org. We are here to help!