Legal Briefing: Subscriber Loses Insurance Coverage After Fire for No Fire Alarm

Many, if not most, jurisdictions have laws requiring fire alarm and monitoring for commercial buildings and subscribers must comply.

Legal Briefing: Subscriber Loses Insurance Coverage After Fire for No Fire Alarm

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The fire alarm industry is, indeed, fortunate — as is the public — that its industry members are 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. Therefore, subscribers are not offered the mere option of installing these systems. Their only real choice is to look for the best deal and services to comply with fire alarm laws.

That’s a pretty good situation for the alarm industry. You would think it would be enough incentive to sell fire alarms and monitoring services, right?

A Less-Obvious Incentive

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 (a) whether to enter a market to sell its insurance product; (b) whom to offer the insurance to; and (c) what to charge.

Although 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 that the policy — this is a contract between carrier and insured — has conditions of coverage. In legal terms, “conditions of coverage” means conditions precedent to coverage.

Alarm customers who own buildings and who insure those buildings — this is probably all of them — are likely required by their insurance contract to install and have monitored a fire alarm system.

Fire Alarms Are Not a Mere Suggestion

This is not a suggestion in the policy; rather, 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 just a representation, then a carrier would take the position that the applicant for insurance lied in the application, i.e., committed fraud, and could seek to void coverage because of the fraud.

A mere promise to get a fire alarm probably won’t be enough to get the coverage. Why? Because proving fraud when dealing with a future promise to do something involves a different level of proof — namely, that the intent was never real.

But let’s not get 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 a fire alarm 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 is not invoked until after the fire. That’s a little late for the owner to do much about it.

When a dispute regarding coverage exists, it generally is resolved in one of two ways: The insured sues the carrier for coverage, or 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, you should do a couple of things. In addition to letting them know you will be “Unleashing the Kraken” — the K&K collection department — you should remind them that they will not only be breaking the law but also probably voiding their insurance that requires a fire alarm.

By the way, “Unleash the Kraken” means to unleash a greatly destructive force, and it’s a catchphrase from the 1981 movie “Clash of the Titans.” Don’t say you don’t learn anything from these articles!

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About the Author

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Security Sales & Integration’s “Legal Briefing” columnist Ken Kirschenbaum has been a recognized counsel to the alarm industry for 35 years and is principal of Kirschenbaum & Kirschenbaum, P.C. His team of attorneys, which includes daughter Jennifer, specialize in transactional, defense litigation, regulatory compliance and collection matters.

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