How to Insure Your Warehouse

by Peter Schlactus, CIC, AAI                    [ Back To Table of Contents ]

With logistics as the new buzzword in the industry, many couriers are seeking to expand beyond traditional delivery services. Storing 
your customers' goods may be lucrative, but it is also risky.

Warehouses expose concentrated values of goods to fire, flood and other damage. They invite theft and open the door to mistakes 
in tracking inventory.

Whether your warehouse is one room or a major facility, it would be wise to protect yourself from the additional liabilities you are 
assuming.

This article examines when warehouse insurance may be necessary, the different types of protection available, and the steps couriers 
can take to minimize their risks and the cost of insurance.

Generally, some form of warehouse insurance is advisable whenever a courier is providing storage services. Other types of insurance 
simply do not provide adequate protection:

· Cargo insurance only covers goods "in due course of transit." Once a customer directs you to store its goods, coverage ceases.

· Property insurance covers your own property -- not your customers'. Even with some "property of others" coverage, your protection 
is limited by the many exclusions found on every property policy.

· General liability policies exclude property in your "care, custody or control." Forget warehouses.

· A customer's insurance may pay them, but then their insurance company has the right to sue you for the full loss.

· Contracts with your customers that limit your responsibility are vulnerable to legal challenge. We have seen warehouse contracts 
overturned on a variety of grounds, including the courier's alleged gross negligence, and even the wording and format of the warehouse 
receipt.

Warehouse insurance protects you where these other methods fall short. However, not all warehouse insurance provides equal 
protection since each insurer is free to draft its own policy language. Some policies are much better than others.

For example, some exclude contractual liability or breakage and improper handling. Others only cover specified causes of loss, 
leaving the burden of proof on you. Just as with cargo insurance, you can benefit from consulting a specialist who will fully 
analyze your needs and avoid "off-the-shelf" policies.

Two Types of Policies

Despite the differences, most ware\-house insurance falls into two broad categories: Warehousemans' Legal Liability policies and 
Bailees' Customers policies.

Legal liability policies cover what they say -- your legal liability as a "bailee" (i.e., ordinary negligence or failure to exercise due care).

Thus, if a burglar beat your alarm and stole a truckload of goods, you would probably not be held liable. It would be quite different, 
however, if the alarm had not been activated, or if an employee start\-ed a fire, or if some computers were knocked around by careless 
handlers.

Warehousemans' Legal Liability is moderately priced and can cover almost all of your legal responsibilities. Still, it falls short of 
delivering true peace of mind. After all, how will your customers react when they hear that, just because you are not responsible for 
the fire or the theft or the landlord's leaking roof, you can't compensate them at all for their lost or damaged property?

It is here that Bailees' Customers policies are most useful. They preserve customers' goodwill by covering stored property for loss 
or damage regardless of your legal liability. Of course, couriers should expect to pay a higher price for this expanded protection.

The Warehouser's Dilemma

Warehousers face a difficult choice: do they risk customer goodwill by selecting a lower-priced legal liability policy? Or do  they pay 
a premium for more complete protection?

No answer fits every case. Again, it is helpful to consult a specialist. Innovative solutions exist to satisfy most needs and budgets.

In addition to selecting the right insurance coverages, there are other steps you can take to get the best deal. Many insurers will offer 
broader protection and better rates to warehousers who demonstrate a commitment to minimizing losses.

First, select the safest possible location for your warehouse. Consider building construction, repairs and maintenance. Look into the 
neighborhood crime rate and any recent warehouse thefts. Inspect surrounding businesses for hazards that could spill over into your 
location.

Second, protect the goods you store. Certified central station fire and burglar alarms should be the rule for all but the smallest 
warehouses. Sprinklers are important, but make sure to keep them well-maintained as sprinkler leakage is a leading cause of loss in 
warehouses.

All stored goods should be on skids or shelving, and the less the building is left unoccupied, the better. Sensitive electronic 
equipment may need its own climate-controlled space. Also, carefully screen your employees and review your procedure for tracking 
stored property. A little prevention can go a long way toward eliminating employee theft and "inventory shortage."

Third, pay special attention to your warehouse receipts and contracts. While never foolproof, these papers provide important protection. 
The better insurers evaluate the quality of your forms and may demand changes as a condition for offering certain coverages. A courier 
would be wise to speak to a transportation lawyer about designing or reviewing these forms.

There is no substitute for talking to your customers about what they want you to be responsible for. A large percentage of warehouse 
claims result from aggravated customers who expected one thing in case of a loss, but received another. The missing element was 
communication.

Educate customers about the options and discuss the costs. In the end, you should have a written contract that clearly describes 
your responsibilities. This will minimize future disagreement and misunderstandings. More sophisticated insurance brokers can 
tailor insurance to these contracts.

Insuring your warehouse operations may not be a logistical nightmare, but it is far less cut-and-dry than insuring a delivery van, 
for example. Almost any courier company that stores its customers' goods would benefit from having special ware\-house insurance. 
Other options just don't measure up.

Practicing good loss control techniques and communicating with your customers ' can reduce your risks and make insurance more 
affordable.

Warehouse insurance comes in different varieties, and even policies with the same title may provide very different levels of protection. 
The warehouser's dilemma further complicates your choice. If you are unsure, it can really pay off to consult a specialist.

In the long run, a well-insured warehouse will also be the most profitable. 

^{Peter Schlactus, a Certified Insurance Counselor and  Accredited Advisor in Insurance, is Co-President of KBS International Corp., which provides specialized  insurance programs, benefits, and  risk management services to courier companies and executives nationwide. Mr. Schlactus is available to answer inquiries  at 1-888-KBS-4321 or via e-mail at peter@courierinsurance.com.}

COURIER MAGAZINE - April/June 1996                    [ Back To Table of Contents ]

(c) copyright, 1999 by KBS International Corp.  All Rights Reserved.