Despite its application stating otherwise, the insured's failure to install a sprinkler system in its building barred coverage for extensive damage caused by fire. American Way Cellular, Inc. v. Travelers Prop. Cas. Co. of Am., 2013 Cal. App. LEXIS 425 (Cal. Ct. App. May 30, 2013).
American Way contacted a broker, A&J, regarding liability and property coverage. A&J sent American Way an application for a policy with Travelers. The application indicated American Way had a sprinkler system and fire detectors in its building.
Travelers issued a policy with a Protective Safeguards Endorsement For Sprinkler Locations and Restaurants. The endorsement stated that as a condition of the insurance, the insured was required to maintain a sprinkler system. An exclusions section said the insurer would not pay for loss caused by fire if there was no sprinkler system.
A fire occurred in American Way's building. Travelers issued a "good faith" advance payment to American Way in the amount of $250,000. Travelers hired an investigator who reported there was no automatic sprinkler system installed in the building. Travelers denied coverage and indicated it would collect the $250,000 payment for lack of coverage on the claim.
American Way filed a complaint against Travelers and A&J, seeking a declaratory judgment and claiming negligence by both. In discovery, A&J stated it was not acting as an agent of Travelers, but as an insurance broker for American Way. Further, in answering Travelers' discovery, A&J stated that a principal of American Way informed an employee of A&J that the building was equipped with a sprinkler system.
The trial court granted Traveler's motion for summary judgment against American Way and A&J. The court held that Travelers owed no duty to American Way to investigate and verify information provided to it by A&J. Nor was Travelers responsible for A&J's negligence. The trial court entered judgment in favor of Travelers and against American Way in the amount of $305,205, representing prejudgment interest and the good faith payment.
American Way appealed and the appellate court affirmed. To prevail against Travelers on the negligence claim, American Way had to show that A&J acted negligently as the agent of Travelers when it wrote the application. The evidence showed as a matter of law that A&J was not an agent of Travelers. Further, an insurer had no duty to investigate the insured's statements made in an insurance application. Rather, it was the insured's duty to divulge all it knew.
Nor could American Way demonstrate triable issues of material fact with respect to its claim for declaratory relief. American Way was precluded from coverage because it failed to maintain an automatic sprinkler system under the terms of the endorsement.
Thanks to my Damon Key blogging colleague, Robert Thomas (www.inversecondemnation.com), for flagging this case.
