A recent federal court decision reminds insurance professionals and policyholders of the practical and legal consequences of failing to comply with protective safeguards endorsements in builder’s risk insurance policies. 1 The Ohio ruling emphasizes that courts will strictly enforce policy conditions, especially when those conditions are clearly outlined and unambiguous. The result was a complete denial of a fire loss claim because the insured failed to erect a required construction fence around the property. Protective Safeguard Endorsements matter, and overlooking them can have devastating consequences.
The dispute arose after a fire destroyed a building that was under renovation. The insured, 3371 Reading, LLC, had obtained a builder’s risk insurance policy from Ohio Casualty, underwritten by Liberty Mutual. That policy included a Protective Devices Endorsement requiring the insured to install a fence no less than six feet high that completely surrounded the jobsite, with all gates locked during non-working hours. Despite this clear requirement, the insured never constructed such a fence and made no attempt to seek a permit to do so. When a devastating fire later leveled the structure, the insurer denied coverage on the grounds that the fencing requirement had not been satisfied. The court upheld the denial, finding the policy language was clear, enforceable, and not subject to any reasonable interpretation that would preserve coverage in the absence of a fence.
The insured argued that the requirement was either ambiguous or impossible to meet, suggesting that the brick walls of the building should satisfy the fencing obligation. They also claimed that because the building abutted another structure, a complete enclosure was not feasible. The court dismissed these arguments, reasoning that a three-sided fence enclosing the remaining sides of the property would have satisfied the endorsement. In doing so, the court gave effect to what it saw as the obvious intent of the policy: to secure the jobsite from fire and theft risks by physical barriers. The notion that a masonry wall under construction could constitute a substitute for a purpose-built construction fence was deemed unreasonable.
This ruling reinforces a consistent judicial approach to protective safeguards. If a condition of coverage is clearly stated, it must be satisfied. Arguments about the difficulty of compliance, lack of awareness, or post-loss confusion generally do not relieve policyholders of their obligations. This is a particularly important lesson in the context of builder’s risk and commercial property insurance, where endorsements like fencing requirements, alarm systems, or sprinkler maintenance clauses are increasingly common. As the court noted, even if compliance was somehow impeded, the insured had a separate obligation to notify the insurer of any such impairment, which it failed to do. That failure alone was sufficient to void coverage.
The case also illustrates how claims of bad faith, fraud, and deceptive trade practices are unlikely to succeed when the underlying denial of coverage is based on a clear contractual term. The insured in this case pursued each of these claims, arguing that the policy was illusory or misleading. The court found no basis for these arguments, reiterating that the insured had the ability to comply with the fencing requirement and that the insurer had not misrepresented the nature of the coverage. Without any false statements or wrongful denial, the secondary legal theories collapsed alongside the coverage claim.
Policyholders should, but never do, read the entire policy, including all endorsements, and ensure full compliance with any conditions of coverage. For agents and brokers, the case is a reminder of the critical importance of communication. In this case, the broker’s office forwarded the full policy to the insured but did not discuss the fencing requirement. The insured testified that it was unaware of any such obligation until after the fire occurred. While that may be a lapse in service, it was not enough to overcome the plain language of the contract. In some states, it could give rise to a negligence action against the agent.
This ruling brings to mind previous concerns we’ve raised regarding whether protective safeguards endorsements violate the intent or spirit of standard fire insurance policies. In an earlier blog post, “Does a Protective Safeguards Endorsement Violate the Standard Fire Insurance Policy?” one of Merlin Law Group’s premier attorneys, Ed Eshoo, questioned whether such endorsements run afoul of established expectations for fire coverage under standard fire insurance policies. That concern remains valid, and cases like this one should provoke serious discussion about how far insurers can go in conditioning fire protection on arguably peripheral or burdensome requirements in a state requiring a standard fire insurance policy.
In another article, “What Are Protective Safeguard Endorsements?” I warned policyholders about the risks embedded in these endorsements and the lack of sufficient warnings from agents:
Protective Safeguard Endorsements are a critical part of property insurance policies aimed at minimizing risks through mandatory safety measures. For policyholders, especially in commercial settings, understanding and adhering to these endorsements is essential to ensure coverage in the event of a loss. To avoid a legal mess and denial of a claim, policyholders and those managing commercial property for policyholders must first place the required equipment into operation. Then, the protective measures must be maintained and regularly inspected to ensure they are operational. Inspection and testing is often the only way to ensure that coverage is not unknowingly being jeopardized.
Ultimately, 3371 Reading, LLC v. Liberty Mutual is another example of what happens when clear policy language is challenged in court. Compliance is not optional. If the endorsement says to fence the jobsite, fence the jobsite. Failure to do so may leave policyholders with no coverage when disaster strikes.
Thought For The Day
“Disaster can strike when we forget the basics.”
—Dwight D. Eisenhower
1 3371 Reading v. Liberty Mutual Group, No. 1:22-cv-62 (W.D. Ohio May 16, 2025).