Issue #3045
Vacancy/Occupancy Clauses; Protective Safeguards Endorsements

Vacancy/Occupancy Clauses; Protective Safeguards Endorsements

In this issue of Adjusting Today, experienced insurance claims professional and respected author Robert J. Prahl, CPCU, examines the subjects of vacancy/occupancy clauses and protective safeguards endorsements in property insurance.

Vacancy/Occupancy Clauses in Property Insurance — An Often Overlooked but Significant Limitation

In everyday use, the terms “vacant” and “unoccupied” are often taken to mean the same thing. When it comes to recovering from an insured property loss involving a premises determined to be one or the other, however, the differences between the two not only become apparent, they can be significant. Add the fact that policy provisions for coverage can vary — and be subject to interpretation by the courts — and the need for a clear understanding of vacancy/occupancy clauses is obvious.

“Insurers have always been concerned about such buildings or dwellings — particularly vacant structures — because of the increased exposures to loss they represent. A vacant or unoccupied structure increases the loss potential from a number of perils because typically no one is tending to the building or dwelling. For this reason, a vacant structure poses higher risks of loss from perils such as fire, vandalism, theft or other criminal activity, water damage from leaking or burst pipes, mold, and weather-related damages. In vacant or unoccupied buildings, damage caused by these perils can go undetected for some time, thus increasing the severity of the loss.”

Protective Safeguards Endorsements — Issues and Implications

What is a protective safeguards endorsement and what are its implications for an insured? While they might offer businesses a premium discount when attached to their policy, they also carry responsibilities for seeing to it that loss-deterring devices such as fire and theft alarms are functioning as they should — and consequences when they are not.

“Usually, when a commercial building is equipped with a protective safeguard device, an underwriter will attach a protective safeguards endorsement to the policy. Protective safeguard devices or services may include automatic sprinkler systems, automatic fire alarms, security guard services, fire or burglar alarms, or similar devices. Many insurers offer a discount when such an endorsement is attached to the policy.”

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