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  • Warehouse insurance

    I am not well-versed with the insurance of a warehouse but I know that aside from the fire insurance as a protection for the warehouse, there’s also the insurance for the contents of the warehouse. This came to my mind when I saw in the news another warehouse that was burned and the company is trying to collect the insurance proceeds for the burned contents. My question in this issue is how does the insurance company assess or evaluate the value of the contents.

  • #2
    I guess it is imperative for a logistics company to have insurance not only for the warehouse but also for the contents and I presume that workers would also be insured. I don’t remember the year but the fire that razed a warehouse in the metro had claimed so many lives. After the investigation, it was discovered that there was no insurance whatsoever which caused the company to be declared bankrupt. I think more than 70 workers died in that fire.

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    • #3
      The too long did not read version of the following comment is;

      Larger operators may be able to arrange Logistics Liability Insurance via an insurance broker, the primary insurers in Australia being Zurich and Berkshire Hathaway. Smaller operators should arrange a goods in custody sub limit on their Public Liability Insurance, once again via an insurance broker and both Miramar and Ryno Insurance are possible sources.

      Some key points to understand regarding warehousing risk;

      Contractual limitation of liability does not absolve any custodian of their duty of care.

      This is not to undermine the value of 3PL terms of service which are an important means of avoiding demands founded upon misunderstanding or that are simply vexatious.

      Carriers' Liability insurance coverage is typically restricted to re-consolidation of the freight only.

      The contractual mechanism varies between policy wordings but many use an absolute time limit of 72 hours warehousing. In any case Carriers' Liability Insurance does not insure warehousing.

      Customers' insurance of their goods does not reduce your duty of care or legal liability.

      Customers may have insured their own property against loss or damage in transit or storage. This may even be a contractual condition of your 3PL service. However, this just means the recovery will be pursued by an insurer rather than the customer. Insurers are possibly the more challenging opponent.
      Insurers delete "Care, Custody and Control" from Public Liability insurance where the business activity includes warehousing.

      Even where there is a limit included in the standard policy wording, you will likely find this has been removed by notation of your policy schedule. If by some miracle this limit is not absolutely removed, the cover may be as low as $50,000.

      Customers’ Goods is not properly covered by addition to a 3PL provider’s property insurance.

      This is perhaps the most damaging but widespread misconception.

      Property must be insured or declared for the full replacement value to avoid being caught by under-insurance clauses (unless the limit is specifically noted as “First Loss”).

      If such limit is less than the full value of the goods, the entire policy (not just the customers’ goods cover) is subject to under-insurance penalties. This places Customers in competition with the Named Insured for the limited proceeds in the event of a claim.

      In fact even losses unrelated to the under-insured customers’ goods may be reduced due to under-insurance across the policy as a whole.

      Finally, 3PL providers will only have a rough idea of what the customers' goods are worth at best, making it impossible to accurately declare the asset value.

      The main point to remember is that there is no viable substitute for legal liability insurance for your customers' property.


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      • #4
        There is a case of the ship that sunk last month where the cargo have been lost understandably due to the accident. I guess it is imperative for logistics companies to get a legitimate insurance policy for their cargo. In such cases where the cargo cannot be recovered at least the forwarding company has a way of recovering the lost amount via the insurance of the cargo.

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        • #5
          The general principles to follow are;

          a) the owner of goods is financially responsible for Material Loss or Damage of their property,

          b) custodians of goods are responsible for their Legal Liability for proper care of the goods in their custody,

          c) all parties have an interest in the others' financial capacity to bear their risk, in most cases via insurance, so carriers and warehouses should avoid goods which are not insured for loss or damage and owners of goods should avoid operators not insured for legal liability for goods in custody.

          (Note that a forwarder arranging insurance on behalf of an owner is not taking legal responsibility for damage, but rather intermediating a financial product purchase,)

          Following these principals provides the greatest certainty for all parties, particularly the owner, because reimbursement of the loss does not rely upon litigation to prove any negligence. The owner's insurance company takes the risk of litigation against custodian/s with successful recovery restoring the owner's insurance claims history.

          I have encountered situations of an owner introducing contract clauses to place responsibility for damage regardless of cause or fault upon the custodian, the motive being avoidance of the cost for insuring their cargo. Unfortunately, this departure from the above principles may create a false sense of security in the owner while introducing uncertainty for all parties.

          An extreme example to illustrate the point would be cargo damaged by a meteorite strike. In this case there is clearly no custodial negligence; the entire claim against the custodian would rest upon contractual provisions. This will be complicated by the following;

          - The Court may be sympathetic to the custodian's argument that they had no control over the cause of damage

          - The custodian may not be a good contract debtor. The custodian will not have a claim against their legal liability insurance (since there is clearly no negligence). They may not have arranged full material damage cover nor have the financial ability to otherwise cover the loss

          - Further to the above, formation of a material damage insurance policy requires knowledge of the type and value of the assets. The custodian will rarely have this information. (Legal liability insurance is informed by freight tasks and earnings which the custodian will know.)

          Will the owner be able to overcome these obstacles in order to receive any cold hard cash and importantly, even if they succeed how long can they carry their loss while these factors play out?

          So if in any doubt regarding the risk management of cargo loss, always follow the three principles outlined at the top of this comment.

          I am happy to clarify.

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          • #6
            It's always in the best interest of any company to have any part of their business insured because there is no way of telling when a horrible disaster might occur. Based on the analysis you made about a warehouse getting burnt down and how will the insurance company would know about the content of what was destroyed by the fire, well in our age and time, almost everything has gone digital. So, there should be a possibility of the warehouse running its inventory on computer systems linked to the company's data base. So, it's only going to take a few clicks and the information would made available for the insurance companies.

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