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Insurer denies coverage for fire loss because policy required monitored fire alarm
October 7 2022
Insurer denies coverage for fire loss because policy required monitored fire alarm
          The Plaintiff owned commercial premises and insured through Allied Insurance.  When it got the policy it completed an application and confirmed that the premises had a monitored fire alarm.  Premises suffered a fire.  Carrier investigated, determined there was no monitored fire alarm and disclaimed coverage.  Law suit was commenced. The principals of the Plaintiff claim they saw an alarm but weren’t really too familiar with the system.
          The insurance policy had the following endorsement:
          “Allied's Policy (the "Policy") contained a "Protective Safeguard Endorsement ["PSE"] Advisory Notice" at the beginning of the policy, which stated at the top that "This Notice does not form part of the contract. No coverage is provided by this Notice[.]" (Doc. 131-2 at 7.) The notice explained that the "policy is written with a [PSE]" that "provides  explicit instructions to preserve coverage." Id. Specifically, the PSE must be "in place, operational, and maintained in good working order at the building shown on the endorsement. Failure to comply with any of these conditions may result in loss of insurance coverage." Id. Another notice appearing on the page describing coverage at the Property reads:
PROTECTIVE SAFEGUARDS This premise [sic] has Protective Safeguards identified by the symbols below. Insurance for fire . . . will be excluded if you do not notify us immediately if any of these safeguards are impaired. See PB0430 for a description of each symbol. APPLICABLE SYMBOLS: P-2
(Doc. 131-2 at 12.) PB0430 is a form titled "Protective Safeguards" appearing after the coverage section in a section titled "Forms and Endorsements." (Doc. 131-2 at 19.) The "Protective Safeguards" form has two relevant components. The first is Section A of the form's first page, which reads: "Condition. As a condition of this insurance, you are required to maintain the applicable protective services or devices denoted by [symbols including the "P-2" referenced above.]" (Doc. 131-2 at 91.) On the next page, the symbol "P-2" is defined as an "Automatic Fire Alarm, protecting the entire building, that is: (a) Connected to a central station; or (b) Reporting to a public or private fire alarm station." (Doc. 131-2 at 91.) The second relevant component of the "Protective Safeguards" form is Section B of the form's first page, which reads: "Exclusion. Under Section B. EXCLUSIONS, the following exclusions are added: . . . We will not pay for loss or damages caused by or resulting from fire if, prior to the fire, you: a. Knew or should have known of any suspension or impairment in [the "P-2" protective safeguard] and failed to notify us of that fact; or b. Failed to maintain [the "P-2" protective safeguard] over which you have control, in complete working order[.]” (Doc. 150 at 10-11; Doc. 131-2 at 91.)”
          The court noted the following, which includes findings from the insurance company’s fire alarm experts:
          “On November 12, 2019, either just after or as Tenants moved out, a fire broke out at the Property. (Doc. 131 at ¶ 30; Doc. 150 at 12.) Stone timely submitted a claim to Allied regarding the loss. On November 15, 2019, Allied hired Joe Sesniak, a fire origin-and-cause expert, to investigate the fire's circumstances. (Doc. 131 at ¶ 31; Doc. 150 at ¶ 31.) On November 19, 2019, Sesniak reported that there was no fire alarm, no wires in the telephone room alarm box, no fire detectors at the Property, and no alarm pull. (Doc. 131 at ¶ 32; Doc. 150 at ¶ 32.) On November 21, 2019, Allied's adjuster James Boles inspected the Property with property manager Phillip Fileccia. (Doc. 131 at ¶ 33; Doc. 150 at ¶ 33.) Boles did not see any evidence of a fire alarm, and Fileccia stated that he was not aware of any specific fire alarm on the property. Id. Allied then hired David Komm of Auspurger Komm Engineering, Inc., to inspect the Property for the existence of a monitored fire alarm system. (Doc. 131 at ¶ 34; Doc. 150 at ¶ 34.) In a January 8, 2020 report, Komm stated that he saw no smoke alarms, carbon monoxide alarms, wireless sensors, fire horn, klaxon, or  anything interior or exterior indicating a fire alarm system. (Doc. 131 at ¶ 34; Doc. 150 at ¶ 34.) He did note that there was a control unit at the Property "suitable" for fire controls, but "all leads were disconnected or simply cut." (Doc. 150 at 13-14; Doc. 131 at ¶ 34.) Komm concluded with "a reasonable degree of engineering certainty" there was no fire alarm system in place at the Property. Id. Eftimoff also visited the Property after the fire and reported that the panel he had seen previously was ripped out and missing, along with the cameras and wiring.”
          The Plaintiff argued that the monitored fire alarm requirement in the insurance policy violated Arizona law by including a Protective Safeguard Endorsement [PSE] and was therefore unenforceable.  The court addressed that issue in an interesting way:
          “Stone argues that Allied's PSE violates Arizona law by conflicting with the Arizona Standard Fire Policy. (Doc. 149 4:23-24.) Stone's argument raises an issue of first impression for Arizona. Arizona Revised Statute § 20-1503(A) provides:
Arizona law applies because this dispute arose in Arizona, and the Court sits in diversity jurisdiction. See, e.g.Allstate Ins. Co. v. Hughes358 F.3d 1089, 1094 (9th Cir. 2003).
No policy of fire insurance covering property located in this state shall be made, issued or delivered unless it conforms as to all provisions and the sequence thereof with the basic policy commonly known as the New York standard fire policy, edition of 1943. Such policy is designated as the Arizona standard fire policy.
The Arizona Supreme Court colorfully described Arizona's reasons for adopting the New York standard policy in a 1925 case:
The whole history of fire insurance legislation shows a ceaseless struggle on the part of the companies to limit their liability, as expressed on the face of the policy, and as generally understood by the insured, through the use of changing conditions on the back of the policy, and in so-called 'riders' attached thereto, frequently phrased in language whose legal meaning is unintelligible to even the well-educated man, and an equally determined effort by the different Legislatures to hold all contracts of fire insurance to fixed forms, so that, when their legal effect was once established, the insured could rely upon there being no new so-called jokers' introduced into his policy, whether by rider or otherwise. The state of New York having, for obvious reasons, had more experience with fire insurance, and worked out a more complete scheme of remedial legislation than any other commonwealth, it was but natural many of the younger and smaller states, and among them Arizona, should have relied on its legislation as a trustworthy guide for them.
Scot. Union & Nat'l Ins. Co. v. Phoenix Title & Tr. Co.28 Ariz. 22, 30 (1925).
The New York standard fire policy requires insurers to insure against "all direct loss  by fire . . ., except as hereinafter provided." N.Y. Ins. Law § 3404(e) (McKinney) (emphasis omitted). The New York standard policy thereafter lists several exceptions, exclusions, and conditions that void, exempt, suspend, or restrict coverage. N.Y. Ins. Law § 3404(e) 2:1-46 (McKinney). For example, the policy is void if "the insured has willfully concealed or misrepresented any material fact or circumstance." N.Y. Ins. Law § 3404(e) 2:1-5 (McKinney). The policy excludes "loss by fire or other perils . . . caused, directly or indirectly, by: [enemy attack, invasion, insurrection, rebellion, revolution, civil war, etc.]." N.Y. Ins. Law § 3404(e) 2:11-27 (McKinney). The policy suspends or restricts coverage "[u]nless otherwise provided in writing added hereto" for fire caused by arson, or fire that occurs while the building is vacant for more than 60 days. N.Y. Ins. Law § 3404(e) 2:2835 (McKinney). Arizona adds an exclusion for loss by fire caused by terrorism to the New York list of limitations. A.R.S. § 20-1503(B). Finally, the New York standard policy (and so too the Arizona standard policy) permits added provisions "not inconsistent with the provisions of this policy." N.Y. Ins. Law § 3404(e) 2:42-46 (McKinney). If a policy's provisions conflict with the standard policy, the standard policy provisions govern. See Nangle v. Farmers Ins. Co. of Arizona205 Ariz. 517, 522 (App. 2003). Stone asserts that Allied's PSE is inconsistent with Arizona's standard policy because it purports to add an exclusion restricting coverage for a "direct loss by fire." (Doc. 149 5:27-28.)”
          The court granted summary judgment dismissing the case, finding the exclusion enforceable:
          “New York insurance law before 1943 comfortably permitted endorsements like Allied's PSE as "warranties," and continues to do so today. In 1939, for example, New York insurance law defined a "Warranty" as:
any provision of an insurance contract which has the effect of requiring, as a condition precedent of the taking effect of such contract or as a condition precedent of the insurer's liability thereunder, the existence of a fact which tends to diminish, or the non-existence of a fact which tends to increase, the risk of the occurrence of any loss, damage, or injury within the coverage of the contract.
Insurance Law of the State of New York, Laws of 1939 136-37 (§ 150) (Paul R. Taylor, ed., Albany Williams Press, Inc. 1953). That definition is still good New York law today and squarely encompasses Allied's PSE because a monitored fire alarm system tends to diminish the risk of loss from fire.”
          The case is CV-20-00160; District Court, Arizona Stone & Kelso v Allied Ins

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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301