In American Way Cellular, Inc. v. Travelers Property Cas. Co. of America, 216 Cal.App.4th 1040 (5/30/2013), the California Court of Appeal ruled, as a matter of first impression, that a property insurance policy requiring the insured to “maintain” a sprinkler system was a condition precedent to coverage, where the insured’s insurance application had falsely represented that the covered building had a sprinkler system. Because no sprinkler system existed, the insured was not entitled to coverage for damage caused by an otherwise covered fire loss. The Court held that the insurance broker’s alleged negligence in preparing the insurance application could not be imputed to the insurer because the broker was not the insurer’s actual or ostensible agent.
The insurance broker prepared an insurance application, which represented that the insured’s building was equipped with a sprinkler system when it was not. The broker testified it was not Traveler’s agent, but rather, acted as broker for the insured. The insured’s principal testified that the insurer never contacted him during the application process.
Based on the application, Travelers issued a property policy containing a “Protective Safeguards Endorsement for Sprinklered Locations and Restaurants,” which stated: “As a condition of this insurance, you are required to maintain the protective devices or services listed. . . . Automatic Sprinkler System, including related supervisory services.” The endorsement excluded coverage for loss or damage caused by a fire if, prior to the fire, the insured knew of a suspension or impairment of the sprinkler system or failed to maintain the sprinkler system in complete working order.