Transporting goods from production facilities to their final destinations often involves a stopover along the way in a 3PL warehouse. Even though they are no longer “in motion,” your goods face just as many risks and it’s important to understand how you can get the most protection from liabilities. Whether you’re using just a portion of the facility or the entire dedicated space, here’s what you need to know about using a 3PL warehouse.
Warehousing claims can arise from theft, fire, flood, high winds, insufficient temperature control, miscalculations of inventory, damage during handling, poor facility maintenance, and more. Considering the wide variety of potential causes, it’s not surprising that there are several gray areas when determining who shoulders the liability for damaged goods.
The United States Uniform Commercial Code (UCC) states that a warehouse is liable for damages to goods if there was a failure to exercise reasonable care. Clearly, there is some room for interpretation on what constitutes “reasonable care.” Liability for damages may also be limited by a term in the warehouse receipt or storage agreement.
In short, if your goods suffer damage or loss while under the care of a 3PL warehouse provider, your business could be responsible for thousands of dollars in lost revenue.
Types of Insurance
Each business is unique and should have insurance coverage that’s tailored for its activities. Depending on the type and volume of goods being stored in a 3PL warehouse, your recommended level of coverage will vary. Here are three popular coverages to consider when contracting a 3PL provider for warehousing and transportation services:
1. Warehouse Legal Liability Insurance
Warehouse legal liability insurance stems from the UCC and states that the warehouse provider is responsible for “reasonable care” and safe storage of your goods. If you purchase this coverage and the warehouse proves to be negligent or does not provide reasonable care, your business will be reimbursed for damages.
Keep in mind that you are still responsible if your goods are damaged by Acts of God and other circumstances where the warehouse could not reasonably be expected to protect your goods. This includes instances where the warehouse provider themselves offered a level of care for goods that was not realistic or reasonable. Be sure that these special circumstances would be covered by insurance before agreeing to terms with the warehouse.
2. Transportation Insurance
Standard transportation insurance states that the carrier must provide safe transport of your goods and is responsible for losses or damages due to negligence. But, as with warehouse legal liability insurance, there are various clauses and limitations that can impact your reimbursement amounts. And the carrier is not responsible for damages due to Acts of God or other circumstances out of its control. The best type of transportation insurance is an all-risk policy, which offers door-to-door coverage and protects against all threat of damage or loss.
3. Contingent Business Interruptions Insurance
Contingent business interruptions insurance is an extension of both of the above policies, extending your protections. This type of policy will safeguard your business in the event that the warehouse halts operations—due to a natural disaster, economic downturn, and the like—and negatively impacts your profits. Contingent business interruptions insurance will cover your losses during the time when the warehouse is inoperable.
Before signing any 3PL warehouse and transportation services contracts, contact us. We can advise you on the best policies to ensure your goods are safe.