The Records Warranty

The "Iron Safe Clause"

These clauses, sometimes called an “iron safe clause” because early policies required records to be kept in a “fire proof iron safe” and required the insured to keep a record of its accounts and inventories and thus enabled the insurer to verify the value of the insured’s loss by fire.

In Dale v. Iowa Mut. Ins. Co., 254 S.E.2d 41, 40 N.C.App. 715 (N.C. App. 1979) the stipulations of the iron-safe clause are more especially addressed to the insurance of the goods, but the premium on the policy is entire; the concluding stipulation is to the effect that if the insured fails to produce the set of books and inventories as required by the contract, the policy shall become null and void, and the “failure shall constitute a perpetual bar to any recovery thereon”; and, furthermore, the goods are insured “while they are contained in the storehouse, and not elsewhere”; thus making the risk on the goods and on the building substantially identical.

The authorities uniformly sustain the validity of the iron-safe clause in an insurance policy, on the ground that its provisions, requiring itemized inventories and a set of books, ‘clearly and plainly presenting a complete record of business transacted,’ provide check upon fraud, and by a compliance therewith a means of ascertaining with reasonable certainty the amount of goods on hand would be forthcoming. This iron-safe clause is a reasonable stipulation in the contract, fair alike to the insured as well as to the insurer, and, if a loss by fire occurs and the insured is unable to show, at least, a substantial compliance with the requirements of his contract, he has no just cause to complain of his inability to reap its intended benefits. [Brand Distributors, Inc. v. Insurance Co. of North America, 532 F.2d 352 (4th Cir. 1976)]

Many first party property policies, and almost all inland marine policies, contain a records clause or warranty that requires the insured to maintain sufficient records to prove the amount of his or her loss. All records clauses are called “iron safe clauses” because they originally required that the records be locked in a “fireproof iron safe.” The requirement for an iron safe is disappearing because of the ability to store records electronically off site. A common form of iron safe clause will provide:

1. The insured will take a complete itemized inventory of stock on hand at least once in each calendar year and, unless such inventory has been taken within twelve calendar months prior to the date of this policy, one shall be taken in detail within 30 days of issuance of this policy, or this policy shall be null and void from such date, and upon demand of the insured the unearned premium from such date shall be returned.

2. The insured will keep a set of books, which shall clearly and plainly present a complete record of business transacted, including all purchases, sales and shipments, both for cash and credit, from date of inventory, as provided for in the first section of this clause, and during the continuance of this policy

3. The insured will keep such books and inventory, and also the last preceding inventory, if such has been taken, securely locked in a fireproof safe at night, and at all times when the building mentioned in this policy is not actually open for business; or, failing in this, the insured will keep such books and inventories in some place not exposed to a fire which would destroy the aforesaid building.

In the event of failure to produce such set of books and inventories for the inspection of this Company, this policy shall become null and void, and such failure shall constitute a perpetual bar to any recovery thereon. [As quoted in Burchfield v. United States Fidelity & Guaranty Co., 238 Miss. 416 (Miss.03/14/1960).]

When a court concluded that the record kept by plaintiff of his business from the taking of the inventory up to the time of the fire was so imperfect that it is impossible to ascertain from it with any reasonable degree of certainty what stock he had on hand at the time of the fire, and therefore what his loss was. The court concluded that the insured did not substantially comply with the iron safe clause acting as a promissory warranty, made part of the policy, to keep a set of books, which shall clearly and plainly present a complete record of business transacted, including all purchases, sales and shipments, both for cash and credit, from date of inventory,’ and therefore there can be no recovery. [Wallace v. Hanover Ins. Co. of New York, 152 So.2d 388 (La. App. 1963)]