Issue link: http://palletcentral.uberflip.com/i/685770
palletcentral.com PalletCentral • May-June 2016 23 have maintained at least 80%. The insurance company will then reduce their loss settlement by the amount the policyholder was underinsured. For a $300,000 fire loss, the insurance company would only pay $187,500. "But my insurance agent told me that I don't have a coinsurance clause and my policy says that I have a "blanket limit." Does this mean I am covered?" Instead of a coinsurance provision, some policies include what is called a "margin clause." This language can be quite deceiving in that it often leads the insured to believe that they have a blanket limit of insurance that can be applied to any location. This is not the case. A margin clause allows the insurance company to limit the amount of coverage available for each location by a certain percentage, despite any appearance of a blanket limit. For example, if property was insured at a value of $300,000 but it actually costs $500,000 to rebuild the structure, the most an insurance policy with a 20% margin clause will pay is $360,000 (i.e. 120% of 300,000) even if there is a $2,000,000 blanket limit. Since replacement costs vary depending on the construction costs and material availability, property policies should NEVER include a coinsurance provision or a margin clause. 2. Protective Safeguards Do not be fooled. The policyholder is not the one being protected by a "protective safeguards provision." A protective safeguards provision allows the insurance company to deny coverage if certain conditions are not satisfied at the time of loss. For example, if the fire sprinkler system does not operate properly, there is no coverage. If the burglar alarm system does not go off, there is no coverage. If the smoke detectors do not work, there is no coverage, and so on. A common protective safeguards provision that is included in most property policies is included as sidebar in this article. In the court case, Burmac Metal Finishing Co. v. West Bend Mut. Ins. Co., the insurance company denied coverage for damage caused to the insured's building after a natural gas explosion based on the insured's failure to properly maintain its automatic sprinkler system as required by the protective safeguards endorsement to the policy. In other cases, insurance companies have attempted to deny coverage if the water valve for the fire suppression valve was not chained in the full open position prior to the loss. You should NEVER have a protective safe-guards endorsement on a property insurance policy. 3. Vacancy A vacancy clause allows the insurance company to reduce or deny coverage if the structure was not sufficiently occupied at the time of a loss. "Our furnace malfunctioned last week causing smoke damage to our building, machinery and inventory. We already paid our deductible, but now the insurance company is telling us that they will only pay for one-half of the damages!" "My building burned down last month, but now the insurance company refuses to pay for the fire loss because the fire sprinkler valve was not chained and locked in the full-open position." Protective Safeguards Pay particular attention to the terms outlined for protective safeguards in your own policy. An insurance company may not pay for loss or damage caused by or resulting from fire if, prior to the fire, you: 1. Knew of any suspension or impairment in any protective safeguard and failed to notify us of that fact; or 2. Failed to maintain any protective safeguard, and over which you had control, in complete working order. If part of an automatic sprinkler system is shut off due to breakage, leakage, freezing conditions or opening of sprinkler heads, notification is not always necessary if you can restore full protection within 48 hours. iStock.com/Thammasak_Chuenchom