The U.S. Fourth Circuit Court of Appeals recently affirmed a lower court decision holding that an insurer waived the requirements of the policy’s protective safeguards endorsement when it had a copy of the inspection showing that the insured was not in compliance with the requirement four weeks before a fire and took no action.  Colony Ins. Co. v. Peterson, 2014 WL 4179962 (4th Cir. Aug. 25, 2014).

The insurer issued a policy that required the insured to maintain a sprinkler system as part of a fire protective safeguards endorsement.  Four weeks after receiving an inspection report showing that the insured did not have a functioning fire sprinkler system, there was a fire loss.  The insurer denied coverage based on the lack of a functioning sprinkler system and sought a declaration that the insured had breached the fire protective safeguards endorsement.  The insured counterclaimed for breach of contract.  The jury found in favor of the insured, determining that the insurer had waived the requirements of the protective safeguards endorsement.  The insurer appealed.

Affirming, the Fourth Circuit found that the requirements of the protective safeguards endorsement could be waived, as the risk of loss to the covered property due to fire was an “accepted risk” subject to forfeiture under North Carolina law.  Further, because an insurer is presumed to be cognizant of the data in the official files of the company, the Fourth Circuit was satisfied that the insurer had sufficient knowledge of the pertinent facts given that the inspection report had been in its file for four weeks before the fire occurred.