Warehouse Legal Liability: What You Need to Know
April 14, 2022
The transportation and logistics industries are ever changing, and lately, warehousing services seem to be more prevalent. According to IBIS World, the transportation and warehousing sector saw a moderate level of expansion between 2016 and 2020 despite mixed operating conditions. Looking ahead, the transportation and warehousing industries are projected to continue to grow. As a warehouse operator, it is of increasing importance to fully understand the legalities of the warehousing business and to ensure the necessary coverage is in place.
A warehouse operator is liable for the goods of others being stored for a fee. Warehouse operations are exposed to many risks including theft, flood, fire, and damage of others’ goods being stored in their facility. If the warehouse were to experience a loss in which customers’ goods were damaged, the warehouse operator could be liable for the failure to exercise reasonable care over those goods.
Warehouse legal liability coverage is intended to respond to the direct physical loss or damage of property during the storage, cross-docking, or other services provided by the warehouse operator. Warehouse legal liability is carried by the warehouse operator, and coverage is triggered by the warehouse receipt.
A warehouse receipt is a document which includes the transactions of the parties involved and is essential in warehouse operations. In order to be valid, a warehouse receipt must contain several pieces of key information– including, but not limited to, the location of the warehouse, the issue date of the receipt, a description of the goods being stored, and the rate of storage. Warehouse legal liability coverage does not apply if a warehouse receipt has not been issued, as there would be no way to determine the property that was to be covered and its value.
It is imperative to understand the contracts and agreements that are in place when providing warehousing services. Enlisting the expertise of an attorney to review the warehouse receipt, bill of lading and any other client contracts will help determine if any contracts expand the warehouse operator’s liability beyond the warehouse receipt. It is also important to note that a warehouse operator cannot waive the obligation of legal liability, as it is mandated by law.
When pursuing a quote for warehouse legal liability, underwriters will likely ask many detailed questions and may perform a physical inspection in order to fully understand the operation and related exposures. The construction type of the building, nature of occupancy, and forms of protection such as sprinklers, alarms, and guards are all important information for underwriters. Underwriters will also likely require a copy of the warehouse receipt issued by the operation.
One should consider the scope of coverage when purchasing a warehouse legal liability policy. Defense costs are often a large expense included in a warehouse claim. However, not all warehouse legal liability insurance policies include defense costs. Debris removal is another cost that may be incurred by a warehouse operator. These are the costs to have damaged property contained, removed, and disposed of after a loss. Some losses may also not be covered by a warehouse legal liability policy. Many policies exclude perils such as wear and tear, deterioration, corrosion, rust, dampness, defects in the property, mysterious disappearance, or employee dishonesty– just to name a few.
Warehouse legal liability can be an excellent coverage to protect a warehouse operator. However, warehouse operations are often complex and should involve legal counsel and the expertise of an insurance professional to ensure these operations are properly covered.
Speak with a Cottingham & Butler representative today for more information.
NSTD, Account Manager Supervisor