Learn about warehouse legal liability insurance. As a warehouseman you are receiver of property that can be stolen, be highly combustible or potentially contaminating. If your customer's property was damaged while warehoused in your facility, you can be held liable for physical loss or damage to their property.
Warehouse Legal Liability Insurance
If you are the owner of a warehouse - no matter what types of products and materials you are storing inside - it is vital that you carry warehouse legal liability insurance.
As per the United States Uniform Commercial Code, those who own warehouses and charge others a fee for storing their items inside are legally responsible for those items while they are being held within the facility. Should the warehouse suffer a loss and the materials of a customer are damaged, for example, the owner of the warehouse facility can be held responsible for not executing proper care of the materials.
General warehouses offer long and short-term storage facilities to both business and residential customers. The length of storage varies from a few days to years, depending on the customer’s need. Services may include packing, pickup, delivery and unpacking as well as storage. Some sell boxes and packaging supplies.
While many warehouses are associated with or are part of moving operations, others may be associated with or part of specific operations storing only a consistent type of stock, such as a parts warehouse for a machinery manufacturer. Some are located next to railroad sidetracks or on waterways for easier access to rail or water transportation. They may be subject to federal inspection and regulation.
Claims against warehouses can arise for several reasons. Some of the most common causes of legal claims include:
- Damaged inventory
- Improper maintenance of the facility
- Lost inventory
- Structural damage to the building during a storm
The repercussions of these types of claims can be extremely expensive and lead to financial hardship. Moreover, they could do severe damage to the reputation of a warehouse, which could impact future business. In other words, legal claims filed against warehouse owners can cause serious turmoil and could potentially result in a total loss of the business. Given the severity of the repercussions that legal claims can cause, it's important for warehouse owners to carry a warehouse legal liability insurance policy.
What Is Warehouse Legal Liability Insurance?
Since warehouse owners are held legally responsible for the goods that they store, a specific type of insurance policy was created to protect owners from the claims that they could face. Warehouse legal liability insurance is considered third-party coverage. In other words, if a claim is filed against a warehouse owner and the owner is found negligent, the company that provides the policy will pay the customer for the losses that were suffered.
It helps cover a warehouse business as a bailee, which a business entrusted with the property of another. it covers direct physical loss or damage of property that happens during storage, cross-docking, packaging, labeling or other services provided by the warehouseman.
This type of insurance policy protects both warehouse owners and the clients that they serve. Since the insurance company will cover the cost of the goods that he or she was found liable for, the individual will not have to pay out of pocket. And, since this policy pays the client whose goods were damaged, the client will not have to pay to replace those items out of his or her own pocket. In other words, warehouse legal liability insurance protects all parties: the owner of the warehouse and the clients that he or she serves.
What does Warehouse Legal Liability Insurance Cover?
The coverage that this type of policy will provide depends on the specific insurance provider. However, in general, a warehouse legal liability insurance policy will cover the following:
- Accounts receivable. For instance, if a loss that the policy covers causes physical damage to the electronic records of the warehouse, this type of insurance will cover the loss.
- Clients' property. If the goods that a client pays a warehouse owner to store are damaged, this type of insurance will cover the cost of replacing the items.
- Tangible goods. Most standard policies will cover the loss of any tangible property, such as hand trucks, forklifts, computers, and any other materials that are used to operate a warehouse.
Some warehouseman policies will also cover things like the cleanup of any pollution that the warehouse is found responsible for causing, debris removal, and losses to property that result from changes in humidity or temperature.
Warehouse Risks & Exposures
Premises liability exposure is limited due to lack of public access to the storage facilities. Customer access should be limited to specific waiting areas, which should be kept clean, dry and free of obstacles. Proper attention to housekeeping is needed to prevent trips, slips, and falls. Contracts with transportation and storage providers may expose the operation to additional liability.
The facility may have a railroad sidetrack or dock. An employee should verify that no one is in the path of an incoming or outgoing train. Railroad tracks and conveyors can be attractive nuisances. The premises should be enclosed by fencing with "No Trespassing" signs posted. Packing or unpacking at customers' premises could result in bodily injury should objects fall on customers, or damage to customers' property.
Workers compensation exposure can be extensive, especially if packing is done. Back and lifting injuries such as hernias, sprains, and strains are common and have high-severity potential. Workers should be trained in material lifting and the property use of conveying devices. Forklift operators must be properly trained. Shelving must be stable to prevent stored goods from falling onto workers. Housekeeping is critical. If the facility has a dock for loading onto barges, the elevator may need U.S. Longshore and Harbor Workers coverage in addition to workers compensation.
Property exposures are high due to the combination of ignition sources such as faulty or inadequate electrical wiring and equipment malfunctions, open construction, and large quantities of combustible stored items and packaging materials. All wiring must be up to code and adequate for the operations performed. The stored goods may have heavy fire loads. There must be adequate aisle space to allow firefighters to carry out their duties.
When another party does the packing, the warehouse will not know the type of property being stored or its potential fire hazards. If rack storage of crates and boxes is used, there should be sprinklers in the racks. The sprinkler heads must be located high enough to avoid accidental contact with forklifts, but with enough clear space from the racks to allow unobstructed operation in the event of a fire. In order to reduce catastrophic losses, firewalls and fire divisions should separate the storage areas. Good housekeeping and fire controls are critical. Smoking should be prohibited. Forklifts should be refueled in a separate, ventilated area away from combustibles. Stored products may be a target for thieves.
Appropriate security controls must be taken including physical barriers to prevent entrance to the premises after hours and an alarm system that reports directly to a central station or the police department.
Crime exposure is from employee dishonesty. Background checks, including criminal history, should be performed on all employees handling money. Storage facilities operations involve a number of transactions and accounts that can be manipulated if duties are not separated. Regular audits, both internal and external, are important in order to prevent employee theft of accounts.
Receipts must be provided for all payments and compared to money received. If packing or unpacking services are offered, drivers, loaders and unloaders will have access to customers' premises, increasing the exposure to theft of customer property or customer identity theft.
Inland marine exposures include accounts receivables, computers, contractors' equipment, goods in transit, valuable papers and records, and warehouse operators' legal liability. Contractors' equipment includes forklifts, cherry pickers, and hand trucks used for moving stored items.
Goods in transit coverage is needed if the operation includes pickup and delivery of customers' goods. Warehouse operators' legal liability will depend on the contract between the facility and its customers, but should spell out who is responsible for damage to stored goods. Any items in storage must be marked to prevent incorrect release. All data should be duplicated and placed off site for easy replication.
Business auto exposure can be high if pickup or delivery services are provided. Children may be present during loading or unloading operations, requiring additional caution. All drivers must be well trained and have valid licenses for the type of vehicle being driven. MVRs must be run on a regular basis. Random drug and alcohol testing should be required. Vehicles must be well maintained, with records kept at a central location.
How Much Coverage Do You Need?
That depends. There are several factors that should be taken into consideration when determining how much insurance you should carry. The size of your warehouse, the type of goods you store, the equipment you use, and the number of clients you services are just some of the factors that should indicate how much coverage you need.
To find out how much coverage you should have, contact a broker that specializes in this specific type of insurance. You can purchase a stand-alone policy, or you can opt for a third party logistics provider policy that includes this type of coverage.
Insurance Classification Of Warhouses
Insurers classify warehouses using several coding systems. You can wind up paying more for your insurance if your facility is not properly classified - like a general merchandise storage being coded as a meat storage facility. Below are the most commonly used coding systems for prepackaged software insurance:
- ISO General Liability Codes: 99938
- NAICS CODE: 493110 General Warehousing and Storage
- SIC CODE: 4225 General Warehousing and Storage
- Suggested Workers Compensation Codes: 8292
SIC Code 4225 - General Warehousing and Storage
Here is the official OSHA SIC code description for general warehousing and storage facilities:
Establishments primarily engaged in the warehousing and storage of a general line of goods. The warehousing of goods at foreign trade zones is classified in Industry 4226. Field warehousing is classified in Services, Industry 7389.
- General warehousing and storage
- Miniwarehouse warehousing
- Warehousing, self-storage
Warehouse Legal Liability Insurance - The Bottom Line
We hope this article on warehouse legal liability insurance was informative. If you own a warehouse, you are legally obligated to properly care for and store the goods you are paid to handle. The right policy will protect you and your customers from any damages that may arise and prevent serious financial turmoil. Warehouse legal liability insurance policy wording, warehouse legal liability vs property of others, warehouse legal liability application, types of warehouse insurance, warehouse property insurance, warehouse storage insurance and warehouse legal liability contract.
Minimum recommended coverage: Building, Business Personal Property, Business Income, Employee Dishonesty, Accounts Receivables, Computers, Contractors' Equipment, Goods in Transit, Valuable Papers and Records, Warehouse Operators' Legal Liability, General Liability, Employee Benefits, Umbrella, Hired and Non-owned Auto and Workers Compensation.
Other coverages to consider: Earthquake, Equipment Breakdown, Flood, Cyberliability, Employment-related Practices, Environmental Impairment, Business Automobile Liability and Physical Damage, Stop Gap Liability and U.S. Longshore and Harbor Workers Coverage