Automatic sprinkler system

Building coverage

Personal property coverage

Vacancy clause

Unsprinklered risks

Earthquake extension

Legal liability insurance

 Automatic Sprinkler System

Sprinkler leakage applies to the leakage from an automatic sprinkler system, and this item is well defined on current commercial property coverage forms. The system includes sprinkler heads and discharge nozzles, ducts, pipes, valves, fittings, tanks (including component parts and supports), pumps, private fire protection mains, connected with and forming part of the system. Nonautomatic systems, hydrants, stand pipes, and hose outlets supplied from an automatic system are also included.

 In order for a sprinkler leakage loss to be covered, it need not occur from sprinkler systems under the insured's control, or even on the insured's premises. The definition of sprinkler leakage refers to leakage from an automatic sprinkler system. Hence, damage from sprinkler systems maintained by the landlord, if the insured is a tenant, or by other tenants, or even damage from sprinkler leakage in another building, is covered. In fact, sprinkler leakage insurance can and often should be written for insureds in unsprinklered premises where these premises or property in them are exposed to sprinkler leakage from another building or from other parts of the same building.

 Building Coverage

 If sprinkler leakage insurance is written on the building, all additions to the building and all permanent fixtures, machinery, and equipment, and personal property owned by the named insured used to maintain or service the building are covered. The leakage or discharge from a sprinkler applies to any substance used in the system, not just water. Additionally, the cost to repair or replace damaged parts of the system is covered if the damage results in sprinkler leakage or is directly caused by freezing. The insurance also applies to the tearing out and replacing of any part of the building or structure to repair damage to the system. So if it is necessary to tear down a wall or ceiling in order to repair a part of the sprinkler system, the property form will cover not only the repair of the system that caused the leakage damage but also the wall and area that is torn out in order to reach the sprinkler system.

 There is, of course, no coverage under this particular cause of loss for the cost of excavations; grading or filling; foundations (including foundations for machinery, boilers or engines) that are below the undersurface of the lowest basement floor or below the surface of the ground if there is no basement; or pilings, piers, pipes, flues, wiring, and drains that are underground. These items are among those listed on property forms as property not covered under the policy regardless of the cause of loss.

 Personal Property Coverage

 The sprinkler leakage cause of loss applies to business personal property if so requested by the insured. This category includes furniture, machinery, equipment, stock, improvements and betterments, and all other personal property owned by the named insured and used in the named insured's business. Stock is specifically defined as merchandise held in storage or for sale, raw materials, and in-process or finished goods. Some personal property items are specifically excluded from coverage, such as accounts, bills, currency, deeds, evidences of debt, money, notes, and securities.

 Vacancy Clause

The commercial property forms have a vacancy clause that affects sprinkler leakage coverage. If the building where loss or damage occurs has been vacant for more than sixty consecutive days before that loss, the insurer will not pay for any loss or damage caused by sprinkler leakage unless the named insured has protected the system against freezing. Therefore, if the insured has a vacant building but has protected the automatic sprinkler system from freezing, the property coverage forms will apply to a loss due to the leakage or discharge from a sprinkler system; that is, of course, subject to any other pertinent provisions on the coverage forms.

 Endorsement CP 04 50 07 88, Vacancy Permit, modifies property coverage forms so that the vacancy loss condition clause does not apply to direct physical loss or damage at the locations scheduled on the endorsement. The provisions of endorsement CP 04 50 would apply to sprinkler leakage coverage unless so specifically stated on the endorsement.

 Unsprinklered Risks

There are many risks that are exposed to sprinkler leakage losses even though an automatic sprinkler system is not installed in the building. Properties may be exposed to losses from automatic sprinkler systems in adjoining or nearby buildings. In some instances, leaking sprinkler systems  have discharged water that then seeped into basements of other buildings or businesses, and the other property was protected by sprinkler leakage insurance just as though it was also sprinklered. Remember that the standard sprinkler leakage cause of loss refers to leakage from an automatic sprinkler system, and it does not limit such coverage to sprinklered risks.

 Earthquake Extension

 An endorsement is available for insureds whose businesses are in areas prone to earthquakes or who simply desire some protection in case an earthquake could strike and set off the sprinkler system. CP 10 39 07 88, Sprinkler Leakage – Earthquake Extension, modifies the causes of loss forms and adds as a covered cause of loss sprinkler leakage loss or damage caused by earthquake or volcanic eruption, explosion, or effusion. There is no question that an earthquake could cause automatic sprinkler systems to burst or otherwise malfunction resulting in a loss to either the insured building or business personal property. This endorsement serves to alleviate to a degree such a loss.

 Legal Liability Insurance

 Owners of sprinklered properties have long had more than a passing interest in legal liability coverage. This is particularly true of operators of sprinklered warehouses and storage places, but almost any insured who has goods of others on his premises or whose property is so situated that sprinkler leakage on his premises could damage property of others is conscious of the possibility of being held liable for such damage and is, thus, interested in insurance protection.

 Liability forms exclude coverage for damage to personal property in the care, custody, or control of the insured. Thus, owners of sprinklered properties whose operations include care, custody, or control of the property of others still have a sprinkler leakage liability exposure. This is not to say that the care, custody, or control exclusion is the only exclusion that could bar coverage—it is probably the most common. A landlord, for example, who had contracted outside the lease agreement to bear responsibility for water damage to tenants' goods would need separate coverage to take care of the assumed liability. But such a situation is a rare occurrence.

 In any case, the insured may simply look to the Building and Personal Property Coverage Form for covering legal exposures due to sprinkler leakage. That form offers coverage, including that for sprinkler leakage damage, for the personal property of others that is in the care, custody, or control of the named insured if the named insured chooses to purchase it. The property of others must be located in the building described on the declarations page in order for this clause to apply, so it just makes sense for the named insured who is insuring a building and has the property of others in the building to choose this option. Any hassles, then, over the insured's legal liability can be smoothed over before a loss; the only question for the insured would be the proper amount of coverage to purchase.