Inventory is often the largest asset a distributor, manufacturer or retailer owns, and it frequently sits in a building the owner does not control. Insuring stored goods means answering two separate questions: who owns the goods, and who is legally responsible for them while they are in storage. This guide covers both sides.
Two different exposures
| Who | Risk | Typical cover |
|---|---|---|
| Owner of the goods | Loss of its own stock wherever it is located | Commercial property (stock), transit or stock throughput cover |
| Warehouse operator or 3PL | Legal liability for customers' goods in its care | Warehouse legal liability, bailee's customer coverage |
Insuring your own inventory
Stock is usually insured as business personal property under a commercial property policy. Points to check:
- Locations. Stock at third-party warehouses, fulfillment centers and in transit must be scheduled or covered by an off-premises extension with adequate limits.
- Valuation. Policies may pay replacement cost, actual cash value or, by endorsement, the selling price of finished goods already sold.
- Fluctuating values. Seasonal businesses can use a reporting form or peak-season endorsement rather than insuring the maximum all year.
- Perils. Flood and earthquake are commonly excluded or sublimited; theft without signs of forced entry and unexplained shortages are often excluded.
- Spoilage and equipment breakdown for temperature-controlled goods.
- Business interruption for lost profit when damaged stock or a damaged warehouse halts sales.
Companies with goods constantly moving between suppliers, warehouses and customers sometimes buy a stock throughput policy, which combines transit and storage cover in one program, often written in the marine market. See our cargo insurance guide for the transit side.
The warehouse operator's legal liability
In the US, warehouse liability is governed by Article 7 of the Uniform Commercial Code as adopted in each state. Under UCC 7-204, a warehouse is liable for loss of or injury to goods caused by its failure to exercise the care a reasonably careful person would exercise under similar circumstances, but it is not liable for damage that could not have been avoided by exercising that care. Damages may be limited by a term in the warehouse receipt or storage agreement, although the limit does not protect a warehouse that converts goods to its own use, and the customer can request a higher liability limit, usually at a higher storage rate.
This has two practical consequences. For the warehouse operator, warehouse legal liability insurance pays when the operator is legally liable for customers' goods, for example after a fire caused by poor maintenance or theft enabled by lax security. For the goods owner, a warehouse that was not negligent, or that limited its liability in the contract, may pay little or nothing, so the owner needs its own property insurance.
Bailee's customer coverage
The Insurance Information Institute (Triple-I) describes bailee's customer coverage as an inland marine cover that protects client property in your care, for example if you operate a warehouse or repair shop. Unlike legal liability cover, it can pay for customers' goods regardless of fault, which helps preserve customer relationships after a loss. Operators should also review general liability, workers compensation for forklift and lifting injuries, and commercial auto for yard trucks and delivery fleets.
Risk controls insurers look for
- Sprinkler systems designed for the actual commodities and storage heights.
- Intrusion alarms, cameras, access control and background checks.
- Accurate inventory records and regular cycle counts.
- Temperature monitoring with alarms for cold storage.
- Clear contracts stating liability limits and who insures what.
Making a claim
Notify the insurer and, if goods were in someone else's warehouse, notify the warehouse in writing right away. Keep stock records, invoices and photos, and do not dispose of damaged goods until the adjuster agrees. If the warehouse may be liable, preserve your insurer's right to recover from it.
Policies are issued by licensed insurers and placed through licensed producers in your state. Request a quote to review your inventory and warehouse coverage.