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Subscriber loses insurance coverage after fire for no fire alarm / Sign up for Group and Private Meetings in Las Vegas
March 20, 2024
Subscriber loses insurance coverage after fire for no fire alarm
          The fire alarm industry is indeed fortunate, as is the public, that the fire alarm industry is adept at complying with local fire alarm laws and requirements.  Many if not most jurisdictions have laws requiring fire alarm and monitoring for commercial buildings.  Subscriber are thus not offered the option of installing these system, only looking for the best “deal” and services to comply with fire alarm laws.  That’s a pretty good situation for the alarm industry and you would think it enough “incentive” to sell fire alarms and monitoring services.
          But there is a less obvious incentive for subscribers.  Most subscribers, and all subscribers who finance their building and have mortgages, are required to insure the building against casualty loss, including loss by fire.  The policy coverage will be enough to rebuild the building and certainly more than whatever is owed to a lender holding a mortgage; owners will also want their equity protected by fire insurance coverage.
          Insurance carriers assess risk when determining 1) whether to enter a market to sell its insurance product and 2) who to offer the insurance to and 3) what to charge.  While carriers understand that there will be claims the gamble is that the carrier will collect more in premiums than it will pay out in claims.  The carrier therefore has to figure out how to reduce the risk of loss for its collective customers [insureds]. 
          Some carriers offering fire insurance have determined that a building is at less risk for fire loss if the building has fire alarm and monitoring.  That issue is so important in the carrier’s decision to write the product or write it to a particular customer, the policy [which is a contract between carrier and insured] has conditions of coverage.  Conditions of coverage mean, in legal terms, conditions precedent to coverage.
          Alarm customers that own buildings and who insure those buildings [which is probably all of them] and likely required [by their insurance contract] to install and have monitored a fire alarm system.  This is not a suggestion in the policy, it’s required.  It’s not worded as a representation by the owner [applying for insurance] that he has or will get a fire alarm; if a representation then a carrier would take the position that the applicant for insurance lied in the application, i.e. committed fraud.  The carrier could seek to void coverage because of the fraud.  A promise to get a fire alarm probably won’t be enough to get the coverage because proving fraud when dealing with a future promise to do something involves a different level of proof, i.e. that the intent was never real. 
          Getting little too far afield.  A condition precedent is much easier to prove; either it was done or not if the coverage requires a fire alarm and it wasn’t installed, no coverage.  If the coverage requires a working fire alarm and it wasn’t working, no coverage; if the coverage requires fire alarm monitoring and it wasn’t being provided, no coverage.
          The “no coverage” by the way, obviously isn’t invoked until after the fire, which is little late for the owner to much about it.
          When a dispute regarding coverage exists it generally gets resolved one of two ways, the customer-insured sues the carrier for coverage, or, as is the case below, the carrier sues for Declaratory Judgment finding that there is no coverage.
          When your fire alarm subscriber fails to pay you or threatens to cancel the long term monitoring and service agreement, besides letting them know you will be unleashing the “Kracken” [K&K collection department] you remind them that they will not only be breaking the law but they probably won’t have fire alarm insurance.  BTW, unleash the Kracken means to unleash a greatly destructive force and is it is a catchphrase from the 1981 movie “The Clash of the Titans,”.  Don’t say you don’t learn from these articles.
          Here’s an excerpt from the case that inspired this article.
Kinsale Ins v Sea Brook Marine. US Court of Appeals, Fifth Circuit [in Louisiana]
          The insurance policy Kinsale issued to Seabrook contained a "Protective Safeguards Endorsement," requiring "[a]s a condition of th[e] insurance," that Seabrook maintain 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." The summary judgment evidence established that, although Seabrook had a security and theft monitoring system, it did not have a fire monitoring system. Because it was undisputed that Seabrook failed to comply with the condition, Kinsale moved for summary judgment in its favor.
          In opposing Kinsale's motion for summary judgment, Seabrook contended that it "had a good faith belief that the property was covered by a centrally monitored fire alarm system, which included hardwired smoke detectors." Seabrook argued that the language of the Kinsale insurance policy was ambiguous in light of prevailing Louisiana statutory law; that  Kinsale's interpretation of the policy led to absurd consequences after applying Louisiana jurisprudence; that the proper legal standard for determining compliance with the policy's requirement under Louisiana law was whether Seabrook exercised "due diligence with no intent to deceive" and that, under that standard, there were genuine issues of material fact making summary judgment inappropriate.
          Seabrook further argued that Kinsale either waived its right to exercise the protective safeguards endorsement or should be estopped from using it to deny coverage because the absence of a centrally monitored fire alarm system did not increase the "moral or physical hazard" under the policy. Specifically, Seabrook argued that "a centrally monitored [fire] alarm would not have alerted the New Orleans Fire Department any sooner in battling this conflagration" because "this fire's origin was outside of the Seabrook office building and the wind driven fire would have started on the office building's exterior in the same area as the alarm monitoring equipment."
          Although not clearly explained, presumably Seabrook was arguing that this fire would have rendered the alarm monitoring equipment inoperable at the outset of the fire.
          The district court determined that Seabrook's maintenance of a centrally monitored, automatic fire alarm was a condition precedent to insurance coverage under the policy; it was undisputed that Seabrook did not satisfy that condition; and the Louisiana statutes upon which Seabrook relied did not support Seabrook. It consequently granted summary judgment in favor of Kinsale that the insurance policy it issued to Seabrook provided no coverage for the fire occurring at Seabrook's facility. Seabrook filed a timely notice of appeal. 
          The district court also denied Seabrook's Rule 56(d) motion for continuance to allow time for further discovery and granted Kinsale's motion to strike Seabrook's third-party demand against Central Monitoring, Inc., doing business as Alarm Protection Services, Inc., et al.

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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