Does a Protective Safeguards Endorsement Violate the Standard Fire Insurance Policy?

As discussed in my blog post last week, the 1943 New York Standard Fire Policy (“the Standard Fire Policy”), or a statutory version differing from it only slightly, is used in many states. The Standard Fire Policy potentially affords insureds more fire coverage than they may otherwise have, given the limited number of provisions which condition, suspend, limit, restrict, or exclude coverage. The Standard Fire Policy does not condition fire insurance on the insured maintaining fire-related protective devices or services, such as an automatic sprinkler system, an automatic fire alarm, and/or smoke detectors. Nor does the Standard Fire Policy exclude coverage for a fire loss if the insured failed to maintain any applicable protective device or service in complete working order.

In contrast, many property insurance policies require the insured to maintain fire-related protective safeguards as a condition of fire insurance. These protective safeguard provisions, which are typically added to the policy as a “Protective Safeguard Endorsement,” also exclude loss or damage caused by or resulting from fire if, prior to the fire, the insured,

1. knew of any suspension or impairment in the applicable protective safeguard and failed to notify the insurer of that fact, or
2. failed to maintain in complete working order any applicable protective safeguard over which the insured had control.¹

The enforceability of a Protective Safeguards Endorsement (“PSE”) to a fire insurance policy written in a Standard Fire Policy state was at issue in Jin Zun Zou v. American Modern Home Insurance Company.² There, an accidental fire started in the basement of a single-family residence in St. Paul, Minnesota. The policy included a PSE worded in the manner above. The applicable protective safeguard was “smoke detectors.” Because there were three non-working smoke alarms in a main floor closet, and since the insured filed to notify the insurer of that fact, American Modern denied coverage for the fire loss based on the PSE exclusion.

Following suit, both parties moved for summary judgment. A Minnesota federal district trial court granted the insured’s motion and denied American Modern’s motion for the following reasons.

First, the district court refused to enforce the PSE exclusion because it was contrary to the Minnesota standard fire policy,³ which did not authorize an exclusion based on a lack of smoke detectors.⁴

Second, the PSE did not state how many fire detectors had to be installed and maintained in working order, or whether a fire detector was required in each room of the insured home. This omission, the district court reasoned, rendered the PSE ambiguous because it created an uncertainty regarding the insureds’ responsibilities.

The district court also rejected American Modern’s argument that use of the word “any” erased any possible ambiguity by plainly requiring every smoke detector present in the home to be in installed and in working order, concluding it would lead to an absurd result. In that regard, under American Modern’s interpretation, coverage would be precluded even if there were functional smoke detectors throughout the house, but one uninstalled smoke alarm in a closet. The result was even more absurd under the facts of this case because the smoke detector in the basement was in working order, among others in the home, and it served its purpose by alerting the occupants to the fire. Thus, the district court declined to construe the PSE to preclude coverage.

The Jin Zun Zou decision is yet another example of the Standard Fire Policy affording insureds more fire coverage than they otherwise had under their property insurance policy.
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¹ See ISO Endorsement IL 04 15 04 98 and ISO Endorsement CP 04 11 10 12.
² Jin Zun Zou v. American Modern Home Ins. Co., 86 F.Supp.3d 1050 (D. Minn. February 17, 2015).
³ Minn. Stat. § 65A.01.
⁴ Under the Minnesota statutory scheme, the standard form of fire insurance guarantees a minimum level of coverage that supersedes any attempt to limit or to restrict coverage to less than the statutory minimum. See Watson v. United Services Auto. Ass’n, 566 N.W. 2d 683 (Minn. 1997).