Warehouse Legal Liability
Warehousing Insurance Coverage
Warehouse operators are exposed to the risks of fire, theft and damage of third-party owned cargo stored in their facilities. What’s more, you have a legal responsibility for cargo loss or damage while in your care, custody or control. In fact, under the United States Uniform Commercial Code (UCC), when you create a bailment situation you legally assume liabilities.
Warehouse Legal Liability insurance will defend your company against claims and pay settlements rendered against your company per the policy terms. But not all policies are the same from one insurance company to another and require the expertise of a professional that understands bailment liability. At Century Total Insurance Agency, our staff will analyze your specific exposures to determine what you need. What’s more, we can combine this coverage with motor truck cargo, marine cargo and property and liability coverages.
The insurance coverages carried by a warehouse operator is one of the most commonly misunderstood elements of the relationship between the warehouse operator and the customer.
In addition to the normal business liability insurance coverages that most companies carry (e.g., commercial general liability (CGL), workers compensation, and motor vehicle), reputable warehouse operators also carry warehouse legal liability coverage. Warehouse legal liability coverage is a unique type of liability insurance policy that responds when a warehouse operator’s failure to exercise reasonable care in the handling and storage of a customer’s goods results in loss of, or damage to, those goods.
Warehouse legal liability insurance is third-party coverage
That means that if the warehouse operator is negligent in the care of the customer’s goods, the insurance carrier directly pays the customer for the loss incurred. For that reason, a customer cannot be, and does not want to be, named as an additional insured under the warehouse operator’s warehouse legal liability policy.
As a warehouse operator’s warehouse legal liability policy only pays a customer if the warehouse operator has been negligent in caring for a customer’s goods, the customer is still responsible for insuring its goods against other types of losses (e.g., fire, windstorm, etc.).
It is also important to note that virtually every warehouse legal liability policy excludes liability for loss or damage in instances where the warehouse operator has agreed to take on a higher degree of responsibility for the customer’s goods beyond what is legally required (i.e., “reasonable care”). This exclusion is necessary because warehouse legal liability policies are underwritten by insurance carriers on the basis of insuring the risks associated with the warehouse operator’s negligence. If a warehouse operator has agreed to assume greater liability for a customer’s goods, then the risks are obviously much more extensive than what the insurance carrier took into account when setting its premium.
In the event of significant loss or damage to the customer’s goods attributable to the warehouse operator’s failure to take reasonable care of the customer’s goods, both the warehouse operator and the customer depend on the warehouse operator’s warehouse legal liability policy to respond to the claim. As such, if a warehousing services agreement contains any provision that requires the warehouse operator to assume liability for a customer’s goods beyond the standard of “reasonable care”, then such a provision may void the warehouse operator’s warehouse legal liability coverage thereby putting both parties in an unfavorable position.
Additionally, it’s critical to have a complete understanding of the contractual agreements through which your warehousing services are provided and the limitations on recovery that can be associated with such warehousing agreements, bills of lading, warehouse receipts and invoices issued for the goods stored. Even if you think you are not responsible for property in your care, custody, or control due to the agreement or receipt, you may find yourself indeed liable. For example, “Acts of God” are often listed as an absolute exclusion in an agreement. This makes sense as a warehouse operator or other bailee is not able to control such forces of nature (earthquake, hurricane, windstorm, etc.). Yet, there are circumstances where liability may be imposed. If you had warning of an impending loss and could have taken reasonable steps to avoid it from happening, you may be found liable. To illustrate this point, suppose a warehouse is located along a river in an area prone to flooding from hurricanes and the ground floor had been flooded previously causing damage to cargo stored there. You could be found negligent if you hadn’t moved the cargo to a higher floor or alternative location when warned of an approaching hurricane. In this situation, with Warehouse Legal Liability insurance, you’d have coverage for the damaged cargo. The policy would respond due to failure to exercise proper care.
We hope that this has helped to answer any questions that you had regarding Warehouse Legal Liability Insurance and the relationship it plays between you and your third party logistics provider.
Warehouse legal liability.pdf