The transportation and logistics industry is ever-changing, and lately, warehousing services seem to be more prevalent. As a warehouse operator, it is important to fully understand the legalities of the warehousing business and ensure the necessary coverage is in force.
Warehouse operators are subject to the United States Uniform Commercial Code (UCC). Under UCC, a warehouse operator is liable for the goods of others being stored for a fee. 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 operations are exposed to many risks including theft, flood, fire, and damage to others’ goods being stored in their facility. Warehouse Legal Liability coverage is intended to respond when the warehouse operator’s negligence, or failure to exercise due care in handling or storing customers’ goods, results in loss or damage to the goods being stored. Warehouse Legal Liability is carried by the warehouse operator and coverage is triggered by a warehouse receipt.
A warehouse receipt is a document, mandated by law, which includes the transactions of the parties involved and is essential in warehouse operations.
Under Section 7 of the UCC, 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 the UCC.
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. They 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. Also, some losses may not be covered by a Warehouse Legal Liability policy. These typically include wear and tear, deterioration, corrosion, rust, dampness, defects in the property, unexplained loss, 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.