Five Contractual Risk Management Tips for Warehousing AgreementsJul 25, 2023
An article by Noelle McCall, CIC, CRM, CISR
In this article, we will discuss general recommendations for warehousing agreements, based on a risk management and insurance perspective, when the client is the warehouse company:
- Risk of Loss: We recommend you review and revise the risk of loss section as needed to ensure that the warehouse company’s risk of loss is limited to liability for damages arising out of loss or damage to customer’s goods or property while in the care, custody, and control of the warehouse company and the warehouse company should only be liable to the extent any such losses or damages were the result of the warehouse company’s negligence or intentional misconduct. Also, the warehouse company should not be liable for loss or damage to such goods or property due to the customer’s negligence or willful misconduct.
- Limitation of Liability: Consider including a limitation of liability to limit the warehouser’s liability for loss or damage to customers’ goods or property to not exceed a specific amount (such as $1.00 per pound of such goods or property), to align with the more limited scope of insurance typically provided by Warehouse Legal Liability (WLL) insurance. WLL is not designed to provide 100% replacement cost coverage for any and all damages or losses to customer’s goods or property. Customers should already be maintaining property insurance on a broader basis for their goods and property while in storage.
- Force Majeure: The warehouse company should only be liable for force majeure-related losses to customer’s goods or property to the extent such losses are caused by the warehouse company’s negligence or intentional misconduct. Customers should already be insuring their goods and property in case of risk of loss from force majeure events.
- Indemnity: From a risk management and insurance perspective, ideally warehouse company’s indemnification and hold harmless obligations should only apply to the extent of the negligence or intentional misconduct of warehouse company and the warehouse company should not be liable for loss or damage to customer’s goods or property due to customer’s negligence or willful misconduct.
- Insurance Requirements:
- Common insurance requirements include:
- Commercial General Liability with $1,000,000 limit per occurrence and $2,000,000 aggregate
- Commercial Automobile Liability (if any use of motor vehicles in performance of the warehousing services) with $1,000,000 limit per accident
- Workers’ Compensation with statutory limits of the jurisdiction(s) of the state(s) of work
- Employer’s Liability with $1,000,000 limits per accident or disease
- Umbrella/Excess Liability over required underlying Commercial General Liability, Commercial Auto Liability, and Employer’s Liability policies, with typical limits ranging from $1,000,000 to $5,000,000 per occurrence
- Warehouse Legal Liability covering warehouse company’s legal liability for damage to goods in the warehouse company’s care, custody, or control, caused by warehouse company’s negligence, with limits of $1,000,000 to $10,000,000 per occurrence, depending upon the highest total insured value of goods being stored at any one time. Limits between $1,000,000 and $5,000,000 are most common.
- Property Insurance on an all-risk, replacement cost basis for warehouse company’s real and personal property, machinery, equipment, fixtures and/or any other property owned or leased by warehouse company.
- Common insurance requirements include:
In conclusion, when it comes to contractual risk management in warehousing agreements, it is crucial for the warehouse company to carefully review and address certain key areas. This includes clearly defining the risk of loss, limiting liability through specific provisions, considering force majeure events and related liabilities, defining indemnification obligations, and ensuring appropriate insurance coverage. By implementing these recommendations, the warehouse company can effectively manage and mitigate risks associated with the storage and handling of each customer's goods and property. It is also advisable to consult with insurance professionals and legal experts to ensure that the contract provisions align with the company's specific needs and requirements. With a proactive approach to contractual risk management, warehouse companies can protect their interests and maintain successful business relationships with their customers.