Summary: Warehouseman's legal liability is a specialized coverage, in that there is no standard Insurance Services Office (ISO) form; the American Association of Insurance Services (AAIS) does have a warehouse operators legal liability coverage form, which is discussed in the Public Liability C.2 pages (see Warehouse Operators Legal Liability Coverage). However, most insurers that write such coverage use their own individualized policies that reflect the particular insurer's underwriting philosophy and coverage guidelines.
This article offers an introductory review of the concept of warehouseman's legal liability. The legal basis of a warehouseman's liability to those who have items stored in the warehouse is noted, as well as those causes of loss that are the primary exposure to loss for the customers' property. Different insurance policies that address a warehouseman's liability are also discussed.
Topics covered: Legal basis of liability Causes of loss Insurance coverages
Legal Basis of Liability
A warehouseman is defined in Black's Law Dictionary as “one engaged in the business of receiving and storing goods of others for compensation or profit”. The warehouseman agrees to take and safely store another's property in exchange for compensation. This contractual business arrangement requires a duty of care on the part of a warehouseman to his or her customers to prevent loss or damage to the stored property. And, since the arrangement is a contractual one dealing with goods, the basis of liability for the warehouseman is the Uniform Commercial Code (UCC).
Section 7-204 of the UCC deals with the duty of care owed by a warehouseman. That section states that “a warehouseman is liable for damages for loss of or injury to the goods caused by his failure to exercise such care in regard to them as a reasonably careful man would exercise under like circumstances but unless otherwise agreed, he is not liable for damages which could not have been avoided by the exercise of such care”. In other words, the warehouseman owes a reasonable man standard of care to his customers; for example, a reasonable man would have the warehouse locked and well lit at night to cut down on the threat of theft, and if these actions are not taken, the warehouseman would be liable for a theft loss. On the other hand, a reasonable man would not expect an airplane to crash into the warehouse, so unless the storage contract addresses such an exposure, the warehouseman would not be liable for damage caused by a falling airplane.
Now, applying a reasonable man standard of care can prevent some losses, but not every single loss.
Theft is probably the greatest exposure to loss for a warehouseman, and that exposure can come from inside and outside. The warehouseman's employees can steal the stored property or have it mysteriously disappear. A thief can break into the warehouse and steal the stored goods.
A fire could start and race through the warehouse destroying everything in its path. A fire could cause an explosion. A fire could cause sprinklers to go off, leading to water damage.
Windstorms, earthquakes, and other natural disasters can occur, all of which can destroy not only the warehouse, but also the items stored in the warehouse. And, even though a reasonable man can not prevent a windstorm or an earthquake, he could still be liable for loss to others' property, based on either a contractual acceptance of liability or on an unreasonable failure to build the warehouse to withstand wind or earthquake damage.
So, if a loss does occur, how does the warehouseman protect his business and transfer the consequences of the loss? One way is, of course, insurance.
A warehouseman's legal liability policy offers to cover the named insured's legal liability for loss to covered property while under the insured's care, custody, or control. For more information about this type of coverage, see Warehouse Operators Legal Liability Coverage.
An insured warehouseman might consider a building and personal property coverage form. This policy pays for direct physical loss of or damage to covered property, which can include personal property of others in the care, custody, or control of the named insured. Of course, this coverage is limited by the provisions of the property form; as an example of the limitations, the most the insurer will pay for loss or damage to property of others in the named insured's care, custody, or control is $2,500 (unless the insured and the insurer agree to schedule higher limits). This amount is not really adequate to cover the exposures of a warehouseman since a great deal of the property at risk is the personal property of others. The building and personal property coverage form does offer coverage without regard to legal liability if the warehouseman is interested in that fact.
A warehouseman might also consider a legal liability coverage form. This form offers to pay all sums that the named insured becomes legally obligated to pay as damages because of direct physical loss or damage to tangible property of others in the care, custody, or control of the named insured. The covered causes of loss can range from basic to open perils, depending on the choice of the insured.