This past week, in American Way Cellular Inc. v. Travelers Property Casualty Company of America,1 a California appellate court held an insurer does not need to pay for fire damage because the policyholder’s property lacked the automatic sprinkler system required by the policy.

In American Way, the policyholder, through its insurance broker, submitted a commercial insurance application to Travelers. In the box entitled “FIRE PROTECTION (Sprinklers, Standpipes, CQ/Halon Systems),” the application indicated the policyholder had “SMOKE DETECTORS/FIRE EXTING./SPRINKLERS.” The application was prepared by the broker based on information obtained from one of American Way’s principals. The owner claimed he was never asked if his business had sprinklers. The policy contained a “Protective Safeguards Endorsement,” which required the policyholder to maintain an automatic sprinkler system on the premises as a condition for coverage.

Following a fire loss and after an advance payment had been made to the policyholder, the insurer learned the premises did not have an automatic sprinkler system, and Travelers subsequently issued a denial letter. At the trial court level, Travelers successfully brought a summary judgment motion and obtained a judgment which included reimbursement of the advance payment.

The appellate court, affirming the trial court’s ruling, was not concerned how the incorrect information was conveyed to the insurer. The policyholder argued Traveler’s had a duty to investigate and verify the information provided in the application. The court, however, held “an insurer does not have a duty to investigate statements made in the application and to verify the accuracy of the representations.” Rather, it is the “insured’s duty to divulge fully all or she knows.”2

The bottom line is that in California and in most other jurisdictions, the policyholder — not the insurance company — is responsible for the accuracy of the insurance application. Whether or not an insurance broker assists with procuring the policy, the policyholder needs to make sure the content of the application is accurate. As illustrated in the above, failure to do so can have unfortunate consequences.


1 American Way Cellular Inc. v. Travelers Property Casualty Co. of America, — Cal. App. 4th —, 2013 WL 2358673 (Cal. App. 2 Dist. May 30, 2013)
2 Citing Mitchell v. United National Ins. Co. (2005) 127 Cal. App. 4th. 457, 476.