Introduction to Bailees Customers Insurance
In the realm of commercial insurance, Inland Marine coverage serves as a versatile category for property that is mobile, in transit, or instrumental to communication and transportation. One of the most critical specialized forms within this category is Bailees Customers Insurance.
To understand this coverage, one must first understand the legal concept of bailment. A bailment occurs when one party (the bailee) takes possession of personal property belonging to another party (the bailor) for a specific purpose, such as repair, cleaning, or storage, with the understanding that the property will be returned or disposed of according to the bailor's instructions. For more information on how this fits into the broader insurance landscape, see our complete Commercial exam guide.
Exam Tip: The CCC Exclusion
On the Property & Casualty exam, remember that standard Commercial General Liability (CGL) policies typically exclude damage to property in the insured's Care, Custody, or Control (CCC). This is the primary reason why businesses acting as bailees must purchase specific Inland Marine floaters to cover their customers' goods.
The Need for Specialized Coverage
When a customer drops off a suit at a dry cleaner or a computer at a repair shop, they expect their property to be returned in good condition. If a fire destroys the shop, the shop's standard commercial property insurance will cover the building and the shop owner's equipment, but it will not cover the customers' suits or computers. Because these items do not belong to the business owner, they are not considered "owned property."
Bailees Customers Insurance fills this gap by providing coverage for the property of others while it is:
- In the insured's place of business.
- In transit between the insured and the customer.
- In the temporary custody of the insured at other locations.
Bailees Liability vs. Bailees Customers Insurance
| Feature | Bailees Liability | Bailees Customers (Goodwill) |
|---|---|---|
| Trigger of Coverage | Only if the Bailee is legally negligent | Regardless of legal liability |
| Customer Relations | Can be adversarial; customer must prove fault | Preserves goodwill; pays even if it was an 'Act of God' |
| Common Perils | Negligence, improper handling | Fire, lightning, theft, windstorm, transit |
Common Businesses Requiring Bailees Coverage
Perils Covered and Valuation
Bailees Customers Insurance is typically written on an open perils (all-risk) basis, though some policies may use a named perils format. Common covered causes of loss include fire, lightning, explosion, collision while in transit, and theft. However, certain exclusions apply, such as wear and tear, inherent vice, or damage resulting from the actual processing or work being performed on the item (e.g., a dry cleaner shrinking a shirt during the wash).
Valuation: Property is generally valued at the Actual Cash Value (ACV) or the cost to repair or replace with like kind and quality. In some specialized markets, such as fine arts or high-end restoration, an Agreed Value may be established. Understanding these nuances is vital for passing practice Commercial questions.
Frequently Asked Questions
While not legally mandated by the state in the same way as Workers' Compensation, it is often a contractual requirement for businesses that handle high-value goods. Furthermore, it is essential for risk management to avoid total loss of customer goodwill following a catastrophe.
No. Bailees Customers Insurance is specifically designed for property of others. The business owner's own machinery, furniture, and fixtures must be covered under a standard Commercial Property policy.
The Bailor is the owner of the property (the customer). The Bailee is the party who temporarily holds the property for a specific purpose (the business owner).
Yes, typically. Unlike a strictly liability-based form, the 'Customers' form is a property policy that pays for losses due to lightning, wind, or fire even if the business owner was not negligent in preventing the event.