Vacancy/Occupancy Clauses in Property Insurance

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...schedule and failed to notify the insurer; or (2) failed to maintain any protective safeguard listed in the schedule, over which the insured had control, in complete working order.

The U.S. District Court found that the endorsement was ambiguous, adding that this particular endorsement has three consequences:

The court then stated that if, prior to a theft, the insured knew that the store’s burglar alarm system had failed to function or was impaired, the theft loss would be excluded.

Although the language of the protective safeguards endorsement in this case was quite clear, the court denied the insurer’s motion for a summary judgment because the endorsement’s condition was waived by the insurer’s acceptance of premiums and continuing coverage after it became aware that the building lacked a functioning burglar alarm system.

The insurer then countered that the report was not conclusive as to its knowledge of a non-functioning burglar alarm system, since it relied on the insured’s statement in the application that the building had a monitored alarm system. The insurer also asserted that it did not accept any premium payments after the date that it had received the report. Nevertheless, the court concluded that there was still a genuine issue of material fact whether the insurer had waived its defense and, thus, denied the insurer’s motion for summary judgment.

In Nunez v. U.S. Underwriters Ins. Co., 2011 NY Slip Op21050, the plaintiff sued for damages caused by water damage to her retail store as a result of a fire that occurred on the second floor residential unit above the store. The plaintiff’s businessowners insurance policy contained a protective safeguards endorsement identifying smoke detectors as the safeguard device. Upon investigation of the loss, no smoke detectors were found in the plaintiff’s store and the claim was denied for failure to comply with the endorsement, although the plaintiff alleged that at the time the insurance application was signed, a smoke detector was operable. In response to the denial, the plaintiff reasoned that the loss sustained was not a result of the fire itself, but rather of water damage used to extinguish the fire above the store, and that the failure to have a smoke detector was immaterial and could not be used as a basis of denial. Both the plaintiff and U.S. Underwriters Ins. Co. moved for summary judgments. In short, the Supreme Court, Queens County, NY, denied the plaintiff’s motion for summary judgment, as well as the cross motion for summary judgment by U.S. Underwriters Ins. Co., but did rule that U.S. Underwriters cannot deny coverage based on a violation of the protective safeguards provision as a result of a lack of a smoke detector — and that it...


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