1. Forms
2. CP
3. CP-04-11

Form CP 04 11: Protective Safeguards (Property Damage)

1. What the form is

The CP 04 11, Protective Safeguards endorsement, is a crucial component of a Commercial Property policy. Its primary purpose is to require the insured to maintain specific protective systems or services, listed in the endorsement's schedule, in good working order as a condition of coverage. Failure to meet these requirements can have severe consequences, potentially leading to the suspension of coverage or denial of a claim, particularly for fire-related losses. This endorsement modifies the Commercial Property Coverage Part and Standard Property Policy. The protective safeguards are identified by symbols such as "P-1" for Automatic Sprinkler Systems, "P-2" for Automatic Fire Alarms, and "P-5" for Automatic Commercial Cooking Exhaust and Extinguishing Systems, among others. A "P-9" option allows for the scheduling of other specific protective systems.

2. Classes of business it applies to

This endorsement is broadly applicable across various commercial property risks where the presence and functionality of protective safeguards are critical to the underwriting and pricing of the policy. It is commonly used for:

• Restaurants: Requiring functional automatic cooking exhaust and extinguishing systems (e.g., Ansul systems) over cooking surfaces is a standard practice. For example, a restaurant with a deep fryer would likely have this endorsement specifying a P-5 safeguard.
• Manufacturing facilities: Businesses with significant fire hazards, such as woodworking shops or chemical plants, will often have this endorsement mandating sprinkler systems (P-1) and/or automatic fire alarms (P-2).
• Warehouses and storage facilities: Due to the high concentration of combustible materials, these occupancies frequently require sprinkler systems and monitored fire alarms.
• Buildings with valuable contents or high human occupancy: Museums, hospitals, schools, and large retail stores may be subject to this endorsement to ensure fire detection and suppression systems are operational.
• Habitational risks: For apartment buildings or other multi-unit dwellings, the endorsement might specify "P-9" to include requirements like fully functional, UL-listed smoke detectors in all units and hallways.

3. Special considerations

There are several critical considerations for both insureds and insurance professionals regarding the CP 04 11:

• Condition of Coverage and Exclusion: The endorsement acts as both a condition of the insurance and an exclusion. Section A outlines the insured's duty to maintain the safeguards. Section B states that the insurer will not pay for loss or damage caused by fire if, prior to the fire, the insured knew of any suspension or impairment of a listed safeguard and failed to notify the insurer, or failed to maintain a safeguard under their control in complete working order.
• Notification Requirement: The insured must notify the insurance company if they become aware of any suspension or impairment of a protective safeguard. However, there's an exception: if part of an Automatic Sprinkler System or Automatic Commercial Cooking Exhaust And Extinguishing System is shut off due to issues like breakage or freezing, notification isn't necessary if full protection can be restored within 48 hours.
• "On" Position Requirement: A significant revision to the endorsement (e.g., CP 04 11 09 17) added a requirement that any automatic fire alarm or other automatic system listed must be actively engaged and maintained in the "on" position at all times.
• Impact of Non-Compliance: Failure to comply can be catastrophic for the insured. If a fire occurs and a required safeguard was not maintained or was impaired without proper notification, the claim can be denied, even if the impairment was unrelated to the cause of the fire. For instance, if a restaurant's P-5 fire suppression system for the kitchen was knowingly offline and a fire started in the dining room, coverage for the entire fire loss could be jeopardized.
• Relationship to CP 00 10: The CP 04 11 modifies the Building and Personal Property Coverage Form (CP 00 10) by adding these specific conditions and exclusions related to protective safeguards.

4. Key information for agents and underwriters

Agents and underwriters must pay close attention to the CP 04 11:

• Pricing and Risk Assessment: The presence of functional protective safeguards often results in premium credits for the insured. Underwriters rely on these systems to mitigate the risk of significant property damage, particularly from fire. The specific safeguards required (P-1, P-2, P-5, P-9, etc.) should be accurately identified and scheduled on the endorsement.
• Underwriting Guidelines: Underwriters need to be specific when warranting the type of protective safeguard. For example, for restaurant risks, the CP 04 11 10 12 (or later editions) is often required to warrant fire safeguards, with P-5 for wet chemical systems and potentially P-9 for dry chemical systems.
• Agent's Duty of Care: Agents have a crucial role in explaining the implications of this endorsement to their clients. It's vital to emphasize that maintaining these systems is not just a recommendation but a requirement for coverage. Agents should:
  • Provide written notice to the insured about the endorsement.
  • Request written confirmation from the insured that they are in compliance.
  • Advise the insured, in writing, to notify the agent or insurer of any impairment or changes to the systems.
  • Recommend that the insured keep detailed maintenance records.
  • Remind the insured of these requirements at each renewal.
  Failure to properly advise clients about this endorsement can lead to errors and omissions (E&O) claims against the agency if a claim is denied.
• Coverage Gaps: The exclusion related to non-compliance typically applies to losses caused by fire. It's important to understand that if a loss occurs due to a peril other than fire, the failure to maintain a safeguard might not necessarily void coverage for that specific loss, though the policy conditions regarding maintenance still apply.
• Clarity in Scheduling: Ensure the "Premises Number" and "Building Number" are correctly identified in the schedule, along with the precise "Protective Safeguards Symbols Applicable." Any "P-9" (Other System) must be clearly described.