A common endorsement often found in commercial property insurance policies is the Protective Safeguards Endorsement (“PSE”). This endorsement is often added to a policy because the insured property is equipped with some mechanism that arguably lessens the risk of loss assumed by the insurance company issuing the policy. Typical safeguard devices which can be listed in the PSE are sprinklers, centrally monitored fire alarms and security service contracts.
Often there is a premium discount associated with inclusion of the PSE because the insured property has the specified safeguard device. For some risks having the specified safeguard is a requirement to even issue the policy. In either case, when the PSE is included in a policy, having and maintaining in operation the safeguard listed on the PSE is a condition of coverage under such a policy. Thus the PSE goes beyond protecting an insurer from dishonest insureds claiming to have a particular safeguard in order to pay a lesser premium. It places a contractual burden upon the insured to be vigilant in keeping the safeguard in operating condition or risk not having coverage if a loss occurs. If a loss occurs while a required safeguard is inoperative, the claim for that loss is likely to be denied.
Owners of commercial property would do well to examine their insurance policy to see if it includes a PSE, and if it does, verify that the insured property complies with the requirements of that endorsement. In addition, one should consider whether or not the premium discount associated with a PSE, if any, is worth the cost and burden of having to make sure that at all times the required safeguard device is functioning.