March, 1991

Coverage for Customers' Property in Furrier's Custody

Prior to the Insurance Service Office's (ISO) introduction of the 1986 inland marine insurance program, furriers customers and furriers block insurance was available under standard forms administered by ISO. That organization withdrew both forms of furriers coverage with the revamping of standard inland marine forms. This coverage is available in the specialty coverage market.

Although furriers coverage is no longer available under standard forms, most companies writing furriers customers and furriers block coverage do so using forms developed from the once standard ISO policies. The following is a generic discussion of furriers customers coverage, using the now withdrawn ISO furriers customers coverage form. The coverage as written by individual insurers may differ in one or several respects. This discussion is meant to impart general information on furriers customers coverage and may be used as a standard for comparing the furriers customers coverage forms available today.

Need for Insurance

A furrier, calling for, delivering, storing, cleaning, or altering furs of customers has the legal status of a bailee for hire. The furrier can, of course, be held liable for loss of these goods if it can be shown that the firm was guilty of any negligence. However, due to the principles of bailor/ bailee law, since the furrier and its customer are in a mutually beneficial relationship, the furrier is held only to the exercise of reasonable diligence in caring for the property of its customers. Thus, though the possibility of legal liability cannot be overlooked, the furrier's need for insurance is related more directly to the customs of the fur trade.

Customers expect that their garments will be returned to them in as good or better condition as when they left them. If furs in the care, custody or control of a furrier are damaged or lost, the furrier is expected to bear the responsibility (at least up to the amount previously agreed on by the furrier and the customer). And the opportunities for loss are great.

Inside the premises, even the strongest vault may be burglarized, fire may damage its contents, sprinklers may leak, employees may be careless, and a variety of other hazards threaten the goods. Furriers are also favorite targets of thieves. Outside the premises or vault, furs are exposed to many hazards, including transportation, sneak-theft, carelessness, or confusion of storage receipts. Especially in the summer months, storage of furs involves heavy concentration of values, with the possibility of a catastrophic loss.

The Basic Policy and Custody Rider

Furriers customers coverage generally provide open perils protection on customers' garments (furs, primarily) up to a limit agreed on by the furrier and the customer as witnessed by the customer's storage receipt. The policy may be broadened to include excess legal liability coverage, coverage of earned storage and repair charges and, in some states, year round protection applying whether the garment was in storage with the furrier or once again in the possession of the customer. While normally written under reporting provisions, the ISO policy could be endorsed to an optional annual premium basis—if the insured qualified and if that alternative was desired.

The ISO furriers customers contract was made up of a basic policy to which was attached a furriers customers custody rider. The basic policy contained the usual general conditions: the insurance was not to benefit any carrier or other bailee; the coverage was excess over other insurance (except with respect to insurance the customer might have); a sue and labor clause; time for filing proof of loss (90 days from date of discovery); time for payment of claims after proof was filed (30 days); a no suit clause; another clause dealing with the insured's duties in case of loss; and a final clause stipulating that the policy was subject to annual rerating. The furriers customers custody rider contained a description of the property covered, exclusions, limits, and additional conditions.

The ISO policy was a continuous contract, not being written for any stipulated term. It remained in force until canceled by the insured at any time or by the insurance company on 15 days notice.

Property Covered

The furriers customers custody rider defined the covered property. The first condition was that insurance applied only to property owned by customers or property that was under a contract of sale to customers (lay-away plans). The types of property covered were, “furs and garments trimmed with fur accepted by the named insured for storage, alterations, repairing, cleaning or remodeling.” In addition—in recognition of the growing practice of customers storing out of season clothes, particularly expensive woolens—a second provision covered: “other garments, textile, and similar articles customarily accepted for storage by garment stores, provided such property is accepted by the named insured for storage.”

Note that coverage was not contemplated for “other garments” accepted by the insured for purposes other than storage—for cleaning, repairing, etc. Separate coverage for cleaners and laundries had to—and may have to be—arranged.

Storage Receipts

In order for coverage to apply under the ISO form, the satisfaction of another condition was required: that the policy cover only property for which a receipt—meeting certain prescribed conditions—had been given. It was most important that the insured furrier understand and carefully abide by the receipt requirements.

Each receipt had to provide that the customer accepted it as correct unless he notified the insured furrier in writing of any error within 10 days. It provided that the furrier would have insurance put in force for the benefit of the customer against fire and theft (the furrier would actually have broader coverage in force under the furriers customers policy) under “terms usual to such insurance.” The amount of insurance had to be stipulated as the value shown for each article in the receipt and this value stated to be the agreed limit of the furrier's liability for loss of or damage to that article. It was also required that the receipt's provisions attach for the benefit of the insurance company to the same extent as for the furrier. Finally, the receipt could not extend, in coverage or in amount, the insurance provided by the furriers customers policy.

The insured furrier could issue temporary or interim receipts without these conditions, but the permanent receipt was to provide that it superseded any temporary or interim receipts. The importance of promptness on the part of the furrier in replacing the temporary receipt with a permanent one was exemplified in the case of Kaufman & Siegel, Inc. v. Charter Oak Fire Insurance Co., 110 N.Y. Supp.2d. 523 (1952). The customer had been given a temporary receipt by the furrier's driver but no valuation had been placed on the receipt. The court held it would be unreasonable to read into the policy a requirement that a truckman must be invested with authority to evaluate a fur garment and to contract with the customer for insurance, repairs, or storage terms. The furrier was awarded the full recovery of a judgment for the value of the coat secured against him by the customer.

Kaufman involved an excess legal liability endorsement (discussed later in these pages), but the court stated that it was plainly intended that loss in transit on a temporary receipt be covered by the basic furriers customers policy up to the catastrophe limit.

It is impossible to overstress the importance of explaining the receipt requirements to the insured. Failure to observe them may void insurance as to any property not properly covered by receipts, and it may also place the furrier in serious danger of being held liable to a customer for more than the declared value of the articles. In other words, if the insured does not understand and live up to the receipt requirements, they may have no insurance when it is needed most.

Equally important is the obligation placed on the insured to keep accurate records of receipts issued.

Who is Insured?

The ISO policy stipulated that coverage applied for the account of the named insured and also for the account of customers. Generally, the customer's rights to coverage stemmed from the insured furrier, unless the furrier had issued a “customer's certificate” to the customer. Certificates for customers are discussed later in this treatment.

In the event of loss, the usual procedure was to pay the loss to the insured furrier for the account of the customer, replace the property through the insured, or arrange for repairs by the insured.

Exclusions

ISO's furriers customers policy covered eligible property of others on a direct physical loss basis, modified by certain exclusions. Some of the more common exclusions were:

·     Loss or damage by insect, vermin, gradual deterioration, inherent vice; and damage sustained by processing or by work upon the goods, unless caused by fire or explosion. For example, damage to fur coats from caustic soda sprinkled by a furrier in the mistaken belief that they were moth preventive crystals was excluded.

·     Loss or damage occasioned by hostile or warlike governmental or military action, including the use of nuclear devices; rebellion, insurrection, revolution, civil war, usurped power, including resistance to such action by government; confiscation by order of any government of public authority; seizure or destruction under quarantine of customs regulations; or risks of contraband or illegal transportation or trade.

·     Liability assumed by the insured under any agreement to guarantee the results of any work to be done on the furs or to provide insurance on them in any amount except as set forth in the policy.

Note that the policy required the furrier to agree to insure the property, but this agreement and the amount of insurance had to be as the furriers customers policy provided. There was no coverage on any additionally assumed obligation to insure, or on guarantees of work.

·     Any amount of loss covered by a fidelity bond carried by the insured furrier or loss which would have been covered by a bond in the absence of the furriers customers insurance.

Note that the basic policy did not exclude infidelity of employees, but simply provided that it should be excess over any applicable fidelity bond. However, infidelity of employees was excluded as respects excess legal liability insurance, if that added coverage had been made a part of the policy.

·     Loss to property shipped by way of the Panama Canal or to or from Alaska, Hawaii or Puerto Rico. (Otherwise, coverage applied to eligible property in the insured's custody at any location—including in transit—in the United States, Canada or Puerto Rico.)

·     Loss caused by nuclear reaction, nuclear radiation, or radioactive contamination (except for ensuing fire damage).

Limits

The provisions dealing with limits of liability stipulated that, with respect to each article, the insurer was liable for no more than the amount agreed on in the storage receipt given to the customer (assuming that this amount was no more than actual cash value or replacement cost). This per item limit applied whether the claim was presented as one of direct damage to the item or from the standpoint of the insured furriers' legal liability. The importance of excess legal liability for the furrier is discussed later.

Aside from the per item limit of the storage receipts, there were four sets of limits, viz.:

1.     A limit for each location used for storage of customer's property. This was subdivided (as to each location) into a limit on property in storage enclosures (vaults, storage rooms, etc.) and one on property outside these enclosures (work rooms, delivery and receiving rooms, etc.)

2.     A limit for each location not used for storage. (Large furriers, for example, often maintain branch stores at which furs are accepted for storage or repairs and sent from there to the storage vault or work room.)

3.     A limit for property in transit.

4.     An aggregate limit of liability for any one loss, which was usually less than the sum of the other limits.

Not all these limits needed to be applied, of course, if the insured's operations did not call for them. The aggregate limit, however, was always required.

Legal Liability Coverage

Generally, furriers customers insurance covers the legal liability of the insured, notwithstanding any insurance carried by the customer. Thus, if furs belonging to a customer are lost or destroyed while in the custody of the furrier and the company insuring the customer paid the loss, it could bring subrogation action against the furrier. The company writing the furriers customers insurance could not deny liability on the ground that the furs were covered by other insurance. It would defend this action and pay the loss if the furrier was held liable.

However, often the policy covers the furrier's liability only up to the amount shown in the storage receipt given the customer. Yet, under some conditions, as in the following example, a court might refuse to limit the furrier's liability to the amount specified. In Lumbermens Mutual Insurance Co. v. F. Z. Cikra, Inc., 99 N.E.2d. 81 (1951), a furrier was held liable for the value of a $2,000 coat, even though the coat had been left at a declared value of $100. The furrier did repair work on the coat and it disappeared before it had been placed in the vault for storage. The Ohio supreme court held that the $100 value limitation applied only to the storage contract and not to the repair contract. Since loss occurred before storage commenced, the furrier was liable for the full $2,000.

Under the ISO program, there were two types of excess legal liability endorsements, one covering garments stored directly for customers, the other covering property stored for other bailees (furriers). If the insured needed coverage under both situations, a separate charge was made for each.

These endorsements called for a per article limit to be established as well as a limit per accident. If more than one location was involved, the per article limit applied at all locations, a per accident limit was set for each location, and a “catastrophe limit” was established for loss at any or all locations. The catastrophe limit could not exceed the sum of the per location limits.

Note that excess legal liability coverage was excluded from application to losses involving infidelity on the part of the insured or its employees. Recall that the basic furriers customers policy covered infidelity losses (up to the limit expressed in the individual storage receipts), except to the extent fidelity coverage was available. This distinction was an important one for the insured to grasp.

Storage and Repair Charges

Bills for storage and repairs are usually paid when the goods are taken out by the customer. Particularly during the summer months, a furrier may have a large sum at stake in earned storage and repair charges. In case of loss of or damage to the stored property, it is difficult or impossible to collect these charges.

The ISO furriers customers policy could be extended to cover these earned storage and repair charges when they were uncollectible or (if prepaid) had to be refunded on account of a loss for which payment was made under the policy. The premium for the added coverage was based on the basic policy rate times the monthly total of such charges reported by the insured. An optional arrangement, calling for an annual premium, deleted the reporting requirement. When this arrangement was used, recovery was limited to the proportion which the “per accident” limit (which is set out in the accrued storage and service charges endorsement) bore to the total actual charges covered at the time of loss.

Certificates for Customers

Rules in a number of states permit the insured furrier to issue special personal fur “policies” to customers. These certificates extend the protection of the furriers customers policy to the customer on a direct basis. The ISO customer furriers policy provided for the issuance of these certificates, as do the policies available today. The customer became an insured, having direct coverage on his or her garments for the amount stated in the storage receipt and applying for a full year whether the garments were in storage with the insured furrier at the time of loss or not. (Coverage did not apply when the property was in the custody of another bailee who had also issued a storage receipt to the insured customer.)

The furriers customers policy had to be endorsed to give the insured furrier the proper authority to issue the certificates to customers. Other common requirements were that each certificate be countersigned by a resident agent, who was not the furrier; that all the conditions of the insurance be shown on the certificate; and that the furrier receive no commission. Naturally, insurance did not apply to any item out of the custody of the furrier unless it was covered by a certificate.

These certificates could cover only garments subject to storage agreements with the insured furrier, of course. A certificate could not cover more than one customer, except members of a family under one domicile. The amount of insurance could not be for more than the declared value of each article.

The furrier collected the cost of each certificate from the person to whom it was issued and made daily reports to the company on the issuance of certificates.

Losses were settled with the furrier or with the certificate holder at option of the insurance company.

Cancellation could be effected by either the insured or by the company. Cancellation by the company on notice to the dealer did not cancel outstanding certificates, which could be canceled only by notice as prescribed in the certificate.