It may not appear so at first glance, but an auto mechanic, dry cleaner and furniture restoration company all have something in common: Each of these diverse businesses temporarily assumes control and takes possession of customers' property as part of their day-to-day functions.
Another thing these businesses should have in common is the need for a bailee's insurance policy to protect them and their customers against losses stemming from damage to or destruction of that property. Bailee's insurance, sometimes referred to as bailee's liability coverage or bailee's customer insurance, helps pay the costs to repair or replace the damaged or destroyed property.
People trust many types of businesses with their property every day. Any type of this kind of transaction is called a bailment. If your business regularly takes possession of your customers' property (holding it in bailment) and is being compensated to do so, you are responsible for returning the property in the same condition as you received it. If not, you are liable for any costs associated with repairing or replacing the property.
Say a customer drops off a suit to be cleaned at your dry cleaners shop and the suit is stolen. Let's say this particular suit is valued at $10,000. That is an expensive risk exposure that is almost always excluded from your general liability insurance policy, since the suit does not belong to you or your business. Now, let's add the cost of that suit to the total value of all the suits, shirts, slacks, dresses and gowns waiting at the cleaners to be picked up by their rightful owners. A single fire could wipe out everything, with cumulative losses of anywhere from several hundred thousand dollars to $1 million. While your property insurance will help you replace any equipment and buildings damaged by the blaze, it will not help you and your customers replace their ruined belongings. Only a bailee's insurance policy can do that.
Along with theft and fire protection, good bailee's insurance policy coverage should also include protection from:
A typical bailee's insurance policy excludes losses stemming from rodents or insects, so that dry cleaner should take care to keep the moths away from their customers' clothing.
Any company that regularly stores, repairs or refurbishes property belonging to its customers should carefully consider adding bailee's coverage to their insurance package. Common types of businesses that hold property in bailment include:
These types of businesses carry several forms of insurance, but only a bailee's policy will protect them from costs stemming from damage to or loss of a customer's property. Other liability insurance policies may cover the business if the item is damaged due to the owner or employee's negligence, but any other event, such as fire, extreme weather or burglary, are exempted from general liability, property and even warehouse insurance policies.
Some businesses try to avoid being liable for their customers' property by having them sign liability waivers on condition of assuming possession of the item or items. However, these contracts do not hold up in court if the property is damaged in any event, except for negligence. Such agreements may be useful if the item is damaged by an employee during the course of storing or repairing the property, but if it is ruined by fire, theft or water damage, the courts do not accept these signed disclaimers. The business is still liable for the costs.
A better way to reduce your risk exposure is to:
As with any insurance policy, the cost of your bailee's coverage will depend on the options you choose and the value of the property you need to protect. There are three main levels of bailee's insurance:
You may be able to add bailee's coverage to your existing insurance package as an extension, or you may need a separate policy, depending on the value of property you assume possession of and whether you simply store the items or work on them in some way.
It's always important to compare bailee's insurance policies from several different companies before deciding which coverage to buy. Knowledgeable, experienced and independent Trusted Choice® insurance agents can help. These agents have spent years assisting businesses in navigating the different coverage options. They can find multiple quotes from a variety of carriers, enabling you to choose the bailee's insurance policy that is best for your particular needs at the most affordable rates. Contact a Trusted Choice agent who can answer any questions you may have and help protect your business with the right bailee's coverage.