An issue recently arose in Texas regarding the protective safeguards endorsement included in an insurance policy.

The plaintiff insurance company insured a building owned by the defendant. The building sustained damage from a fire. The insurance company denied coverage, contending the building lacked a local fire alarm that was in complete working order, as the insurance policy required. The defendants leased the real property to a tenant who obtained the insurance policy from the plaintiff insurance company. The policy covered “direct physical loss of or damage” to the building. The defendant property owner remained insured to the extent of physical damage to the building.

After the fire, the tenant filed a claim under the policy. The insurance company sent the defendant and its tenant a letter denying coverage because there was no local fire alarm in the building.

The insurance company filed a declaratory judgment action in federal court against the owner of the building, defendant and their tenant seeking a determination that it was not liable to them. The defendants counterclaimed for, among other things, breach of contract.

Approximately eight months after the insurance company initiated the federal action, a business hired by the defendants to clean the building after the fire sued the defendants in Texas state court. The defendants brought the insurance company into that case as a third-party defendant, asserting the same claims as in their counterclaims in the federal lawsuit. The insurance company removed the Texas lawsuit to federal court. The district court ordered the cases to be consolidated. 

The defendants moved for summary judgment, arguing that the policy covered the damage caused by the fire. The district court agreed, holding that the policy covered the insureds’ loss, and that the building had a local fire alarm, among other alarms, which was in a normal operating state. After a series of administrative hearings, the court of appeals indicated that it may grant summary judgment on an issue only when no genuine dispute as to any material fact exists and the movant is entitled to judgment as a matter of law. A dispute is genuine if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. The “protective safeguards” endorsement (PSE) provided that, as a condition of this insurance, the defendants were required to maintain listed devices. The PSE lists these devices: “Central Station Burglar Alarm Local Fire Alarm.” Second, as an exclusion, the PSE states that the insurance company will not pay for loss or damages caused by or resulting from fire if, prior to the fire, the insureds failed to maintain any listed device in complete working order.

The defendants identified several devices they alleged the building had that constituted local fire alarms within the meaning of the policy. The court pointed out that one of the panels could be programmed to manually activate a fire alarm from the keypad. Another panel had a “PANIC” icon on its home screen represented by an exclamation point in a yellow triangle. Pressing the PANIC icon would show an emergency screen, which showed a symbol of a flame labeled “Fire.”

The insurance company contended that neither of the alarm panels constituted a “local fire alarm” within the meaning of the policy.

The court pointed out that the insurance policy did not define the term “local fire alarm” and therefore concluded that the alarm panels were local fire alarms within the meaning of the PSE. Therefore, the court affirmed the ruling of the district court, which granted summary judgment in favor of the defendants.

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