PROPERTY OF OTHERS

(June 2019)

15 fur 2012-01-28 12

INTRODUCTION

Property of others in the insured business' care, custody, or control has always been accompanied by issues related to underinsurance, difficulty in adjusting losses, and uncertain coverage with respect to commercial property coverage forms and policies. Over the years, coverage forms and rules have changed to accommodate businesses’ different and changing needs. It is necessary to be familiar with the exposures and coverage options to address and respond to these exposures in order to prevent gaps in coverage and avoid coinsurance problems.

This article reviews various guidelines used to address these exposures. Some of the insurance coverage forms and policies that may be used are:

Building and Personal Property Coverage Form
Legal Liability Coverage Form
Bailees Customers Coverage Form or Policy
Furriers Customers Policy
Jewelers Block Policy
Garage Coverage Form

CARE, CUSTODY, OR CONTROL

A bailee is any business entity with goods or property of others in its care, custody, or control. The bailor owns the goods or property. Bailees have a legal obligation to exercise a certain degree of care to protect the owner's goods from damage. The bailee owes this obligation only when the cause of loss is within its control. If property of others is damaged or destroyed due to the negligence of the bailee or its employees, the bailee is responsible and must compensate the owner. This is common law liability based on negligence and is often referred to as "liability imposed by law." Contractual liability is when a bailee assumes liability for damage by written or oral contract. The combination of liability imposed by law and contractual liability is known as "legal liability."

Apart from legal liability, some businesses providing services involving repair, processing, or storage of customers’ goods may want to protect their customers regardless of legal liability. Doing so maintains customer good will and reflects customary trade practice in some cases.

Customers’ goods are not the only kinds of personal property that may be in the insured's care, custody or control. For example, leasing machinery, equipment, and other personal property is a common commercial transaction and many insureds become bailees with respect to the personal property they lease.

To summarize, a bailee may have "legal liability" that is imposed by law, assumed by contract or assumed voluntarily. All are examples of situations where a bailee may want insurance to cover the exposure.

COMMERCIAL GENERAL LIABILITY INSURANCE EXCLUSION

Exclusion j. Damage to Property in ISO’s Commercial General Liability coverage form specifically excludes damage to property in the insured's care, custody, or control under. This effectively removes claims for damage to customers' property that a bailee holds for service or storage.

There are two exceptions to the care, custody, and control exclusion. One is for fire damage to landlord’s property. The other is for sidetrack agreements. Neither of these addresses the problem of insuring property that an insured receives as a bailee.

Related Court Case: Bailee Clause Does Not Bar Coverage

CP 00 10–BUILDING AND PERSONAL PROPERTY COVERAGE FORM

Personal property coverage automatically includes leased personal property the insured is contractually responsible to insure.

Example: Klever Repairs, Inc. leases its telephone and computer systems. The property is valued at $20,000 and Klever is required to insure it. Klever's owner includes the value of this property in the personal property limit. As a result, the coverage that applies to these systems is the same coverage that applies to Klever's other personal property.

Leased property cannot be covered as Business Personal Property when there is a limit for Personal Property of Others on the declarations. It must be added to any other items of Personal Property of Others.

Example: Klever Repairs, Inc. has $6,000 of customers’ property on its premises. It decides to insure these items under its CP 00 10 by adding a $6,000 limit on the declarations for Personal Property of Others. Unfortunately, the agent did not realize that this action changed the status of the telephone and computer system. The computer and telephone system will be subject to the $6,000 property of others limit if a loss occurs, not the business personal property limit.

Coverage on Personal Property of Others applies to personal property of others in the insured's care, custody, and control while it is in the building or structure. Is also applies to such property while it is within the greater distance of 100 feet of either the building or structure or the premises while either in the open or in a vehicle. Loss payments are made for the consideration of the property owner or owners of this property. Coverage applies regardless of whether or not the insured is legally liable for the loss.

One reason to have a separate personal property of others limit is causes of loss. The insured may want to pay to insure personal property of others for only the causes of loss the contract requires. If the coverage required is for only certain named causes of loss, the insured may decide to insure the personal property of others under CP 10 10–Causes of Loss–Basic Form or CP 10 20–Causes of Loss–Broad Form while insuring its own business personal property under CP 10 30–Causes of Loss–Special Form.

Example: Genevieve’s Firearms is contractually obligated to insure its leased computer equipment for fire, windstorm, and vandalism causes of loss. The value of this equipment is $25,000. If Genevieve includes this value with its personal property limit, the premium is $1,200, largely due to the significant theft increment. If it is insured as Personal Property of Others, the premium is only $300, and Genevieve saves $900.

CP 00 40–LEGAL LIABILITY COVERAGE FORM

"Legal liability" is the key term with this coverage form. This coverage form is designed to cover direct physical loss or damage to physical property of others in the insured's care, custody, or control, as the law or a written contract requires. The property covered must be described and have a limit. The covered causes of loss available are the same as the ones available for any commercial property coverage form but the causes of loss that must be insured are usually more limited.

This coverage form was developed to meet the subrogation demands against insureds that cause a loss. Specifically, insurance companies for landlords and tenants may subrogate against the party that caused the loss, depending on the lease. Legal liability insurance is one way to protect a lessee with respect to the building it occupies or to a building owner with the personal property of the tenant in mind.

While this coverage form can be used for customers' goods taken in for service or storage, its limited coverage may not satisfactorily maintain the insured's customers' good will.

BAILEES CUSTOMERS INSURANCE–INLAND MARINE

The bailees customers coverage form or policy is broad, tailor-made coverage for businesses that take property of others in to clean, repair, process, or store. It is inland marine insurance coverage designed to cover damage to or destruction of customers' goods. It assures the customers' continuing good will by promptly compensating them for their losses after a fire or other insured loss. Coverage applies when the property is on the insured's premises, in the custody of agents or branch stores, and while in transit to and from the customers' premises, branch stores, and agents' premises.

Most bailees coverage is written on laundries and dry cleaners but it is suitable for a wide range of business services. Some examples are rug and carpet cleaners, tailors and dyers, upholsterers, television and household appliance service companies, other appliance shops, lawnmower repair shops, enameling plants, electroplaters, and heat-treating risks.

AAIS Bailee Customers Floater Coverage Form–Dry Cleaners and Laundry Coverage Form

AAIS Miscellaneous Bailee–Processor Floater Coverage Form

ISO Bailees Customers Coverage Form

FURRIERS CUSTOMERS POLICY

Furriers Customers policies provide specialized insurance coverage on fur garments that customers leave to be cleaned, repaired, or stored. The same insurance companies that write furriers block policies usually also write this coverage.

Furriers customers insurance is generally written on an "all risks" basis, subject to exclusions designed to specifically address the type of property and its exposures. Coverage applies for the insured's legal liability for property of others in its custody to be altered, repaired, cleaned, remodeled, or stored, up to the policy limit. Coverage applies only if the insured issues a receipt to the customer. These receipts state that insurance applies to each article listed and also state the specific amount of insurance that applies. This stated amount becomes the insured's liability for loss or damage to each article. The receipt's provisions do not extend the coverage the coverage form, or policy provides, and customers usually accept the receipt as issued, without attempting to negotiate or alter any of its elements.

Coverage applies while the covered property is in the insured's custody at the premises named in the coverage form or policy and while in transit. Limits are entered for each storage location, each covered location not used for storage, and while in transit.

Furriers Customers Custody Policy

ISO Furriers Customers Coverage Form Analysis

JEWELERS BLOCK POLICY

Jewelers block insurance is usually written on an "all risks" or special causes of loss basis on retail jewelers to cover:

Their jewelry stock in trade
Similar property of others in the insured's care, custody, and control. This item broken into two categories based on ownership:

o Others who are in the jewelry trade

o Others who are not in the jewelry trade. This category includes customers' property left with the insured to be cleaned, adjusted, repaired, redesigned, or for a number of other reasons.

To qualify for coverage, the insured must:

Keep detailed and itemized inventory records of all covered property
Conduct a physical inventory at least annually
Maintain books that show records of all business transactions and detailed records of property of others in its care, custody, and control. These records must be specific to the parties who own the property and whether they are in the jewelry trade or not.
Keep records of all traveling salesperson stock and property sent to others for any reason

Another requirement is that the insured maintain all protective safeguards indicated on the application for coverage. This application is usually referred to as the Proposal for Jewelers Block Policy. If any protective safeguard is not properly maintained and kept in working condition at a described location or is not operating at all times when the risk is closed for business, coverage is automatically suspended until the equipment or service is returned to operation.

Watchman service, burglar alarm systems, safes, vaults, and other important protective devices are extremely important for this class of business. In addition to maintaining them being a policy warranty, they are also used to determine the risk's acceptability and the rating and premium charges. The market availability for this class of business is usually tight, especially in large urban and/or high crime areas.

ISO Jewelers Block Coverage Form

Jewelers Block Policy

AAIS Jewelry Dealers Coverage

ISO Jewelers Block Coverage Form

GARAGEKEEPERS COVERAGE

The bailee position of a business that accepts customers’ automobiles for service or storage is well established. Specialized automobile insurance is available for bailees with this exposure. Garagekeepers Coverage can be written as Section III in ISO CA 00 25–Auto Dealers Coverage Form or by attaching CA 99 37–Garagekeepers Coverage

to CA 00 01–Business Auto Coverage Form.

The basic coverage is provided on a legal liability basis. Insurance companies offer modified coverage under one of two options. One provides direct coverage on customer vehicles on an excess basis over the customer's coverage, without regard to legal liability. The other covers on a primary basis also without regard to legal liability and without regard to any insurance that garage customers may carry on their vehicles.

All three approaches cover the fire, lightning, explosion, theft, vandalism, and malicious mischief causes of loss or perils on a package basis. They eliminate having to individually select the perils or causes of loss to be covered. Collision and Comprehensive coverages are also available.

CA 99 37–Garagekeepers Coverage

CA 00 25–Auto Dealers Coverage Form Analysis