Warehouse legal liability covers warehouse owners' or operators' liability for loss or damage to goods their customers store in their warehouses. They can be public, private, bonded, and specialized warehouses. Since this is liability coverage, the insurance company also defends against suits brought for damages.

The warehouse receipt is a vital part of this coverage. It is the storage agreement between the property owner and the warehouse operator. It provides the foundation for the liability that the warehouse owner or operator assumes for loss or damage to property of others it stores. In addition the Uniform Commercial Code (UCC) provides the standards for warehouse operator’s liability. The combination of the UCC requirements and the warehouse receipt provide the legal framework that determines the named insured's liability for property stored.

AAIS has developed one Warehouse Legal Liability Coverage form that has its corresponding schedule of coverages. This analysis examines this coverage form.

Any commercial warehouse operation that stores property of others for a fee and issues a warehouse receipt subject to requirements of the Uniform Commercial Code is eligible. Because of these requirements, mini-warehouse operations and self-storage facilities are not eligible for this coverage.

AAIS Warehouse Legal Liability Coverage requires at least these four forms:

• CL 0100–Common Policy Conditions. This form contains five basic conditions that apply to all AAIS commercial lines coverage forms and policies.
• IM 7900–Inland Marine Declarations
• IM 7650–Warehouse Legal Liability Coverage
• IM 7655–Schedule of Coverages–Warehouse Legal Liability

This Schedule of Coverages is used with IM 7650–Warehouse Legal Liability Coverage. IM 7655 contains the following information:

Catastrophe Limit

The Catastrophe Limit is the most paid for loss in a single occurrence.

Warehouse Limits

The warehouse numbers, addresses or descriptions, and limits of insurance are entered in the spaces provided. IM 7673–Additional Warehouse Schedule–Warehouse Legal Liability lists additional warehouses.

Coverage Extensions

The limits on the Schedule of Coverages for the following coverages apply to all covered locations:

• Additional Debris Removal Expenses. The additional limit is $5,000 unless a different limit is entered.
• Defense Costs: Covered. No entry required.
• Emergency Removal. This applies for ten days unless a different number of days is entered.
• Fraud and Deceit. The limit is $50,000 unless a different limit is entered.

Supplemental Coverages

Each of these coverages provides additional limits of coverage or additional coverage. Required entries vary by type of coverage.

• Earned Warehouse Charges: The limit is $5,000 unless a different limit is entered.
• Newly Acquired Warehouse: The limit is $50,000 unless a different limit is entered.
• Pollutant Cleanup and Removal: The limit is $10,000 unless a different limit is entered.
• Rewards: The limit is $1,000 unless a different limit is entered.

Deductible

A deductible amount must be entered in the space provided.

Optional Coverages and Endorsements

This section of the schedule of coverages lists endorsements and forms included when the policy is issued.

This analysis is of the 04 04 edition.

This section states that the insurance company provides the coverage described in the coverage form and in the schedule of coverages in return for the insured's premium payment, subject to all the coverage form's terms, conditions, endorsements, and definitions.

Defined terms are used throughout the coverage form. Restricting their meaning to the definition in it is how all parties have a clearer understanding of the coverage intended. Fifteen terms are defined:

1. You and your

These are the parties identified on the declarations as the insured.

2. We, us and our

This is the insurance company that provides the coverage.

3. Earth movement

This is earthquake, landslide, mudflow, mudslide, mine subsidence, sinking, rising, or shifting of earth or any other movement of the surface of the earth. It does not include sinkhole collapse.

4. Flood

This is flood, surface water, waves, tidal water, or overflow of bodies of water. Spray resulting from these, whether driven by wind or not, is also considered flood.

5. Limit

This is the amount of coverage that applies to the insured property.

6. Perishable stock

This is property that must be stored or maintained under specific controlled conditions. Such property is subject to loss or damage when those controlled conditions change.

Note: Common controlled conditions include (but are not limited to) heating, refrigeration, and humidity control.

7. Pollutant

This is a broad and expansive term. It includes solids, liquids, thermal or radioactive contaminants and irritants including, but not limited to, acids, alkalis, chemicals, fumes, smoke, soot, vapor, and waste. Waste also includes materials intended for recycling, reclamation, and reconditioning, as well as for disposal. Visible and invisible electrical or magnetic emissions and sound emissions are also considered pollutants and are included.

8. Schedule of coverages

This is any page labeled as such that contains coverage information, including declarations or supplemental declarations.

9. Sinkhole collapse

This is the sudden settling or collapsing of the earth's surface into an underground opening created by water that acts on limestone or some other rock formation. Sinkhole collapse does not include either the value of the land or the cost to fill sinkholes.

10. Specified perils

These are the named perils of aircraft, civil commotion, explosion, falling objects, fire, hail, fire extinguishing equipment leakage, lightning, riot, sinkhole collapse, smoke, sonic boom, vandalism, vehicles, volcanic action, water damage, weight of sleet, snow or ice and windstorm.

Falling objects must be explained further. It does not include loss to personal property stored in the open. It also does not include damage to the interior of buildings or personal property stored in buildings unless a falling object first breaches the building's exterior.

Water damage also requires further explanation. It is the sudden or accidental discharge or leakage of water or steam. However, it must be a direct result of a part of the system or appliance that holds the water or steam cracking or breaking.

11. Spoilage

This is a negative change in the physical condition of perishable stock that results in its damage. It includes (but is not limited to) frozen goods thawing, refrigerated property warming, or liquids solidifying.

12. Suit

This is a judicial proceeding, including any required arbitration proceedings, to determine liability and damages to covered property of others that was in the named insured's care, custody, or control.

13. Terms

These are all policy provisions, limitations, exclusions, conditions, and definitions that apply to this coverage.

14. Volcanic action

This is airborne volcanic blast or shock waves, ash, dust, and particulate matter. It includes lava flow but does not include the cost to remove dust, ash, or particulate matter that does not directly damage covered property.

15. Warehouse receipt

This is the document the named insured issues to the customer. It describes the property being stored in the warehouse, provides information on the weight, number of units, or other measure of the quantity or amount stored, and the amount of liability the named insured assumes.

1. Legal Liability Coverage

The insurance company covers the named insured's legal liability for loss or damage to covered property stored in its warehouse. The property must be in the named insured's care, custody, or control and the named insured must be legally liable as a warehouse operator by virtue of a warehouse receipt it issued for the property.

2. We Do Not Cover

The insurance company does not pay for costs, expenses, fees, fines, penalties, or similar damages imposed because the named insured violated laws or regulations regarding appropriate claims handling procedures.

Coverage applies to the property described below, subject to any exclusions or limitations.

1. Coverage

Coverage applies to direct physical loss or damage by a covered peril to property of others stored at the named insured's warehouse.

2. Coverage Limitations

The coverage provided applies only while covered property is in a warehouse listed and described on the schedule of coverages or within 100 feet of it. The property covered must be described in a warehouse receipt that the named insured issues.

Twelve specific types of property are excluded:

1. Aircraft or Watercraft

This property is more correctly insured under aircraft and watercraft coverage forms and policies.

2. Art

This includes all objects of art. Examples are paintings and statuary.

3. Assumed Liability

This is property the named insured assumed liability for that exceeds the liability imposed on it by law.

Note: The named insured can assume any degree of liability it wants but doing so does not broaden the scope of coverage provided.

4. Contraband

These are goods that are illegal to possess or that are legal but in the course of illegal transportation.

5. Furs

This includes fur garments and fur-trimmed garments. This property is more correctly insured under furriers customers coverage forms.

Provisions That Apply To Coverage Extensions

There are four coverage extensions. The limit for each is either the limit on the schedule of coverages or the default limit included in the coverage form. These limits are part of the applicable limit for covered property and not in addition to it, unless otherwise indicated. These limits are not added to or combined with limits for any other coverage extension or supplemental coverage and are not subject to any coinsurance provisions that apply elsewhere in the coverage form.

1. Debris Removal

The insurance company pays costs incurred to remove debris caused by a covered peril occurring. The most paid is 25% of the amount paid for the actual direct physical loss or damage. The combined value of the direct loss or damage and the debris removal cannot exceed the limit of insurance for the covered property.

An additional $5,000 (or a higher amount entered on the schedule of coverages) is available if the debris removal expense is more than 25% of the loss amount or if the combined cost of loss and debris removal is more than the limit of insurance for the covered property. Debris removal expenses must be reported to the insurance company within 180 days of the loss date in order for this extension to apply.

Note: This coverage extension does not apply to any pollutant cleanup, extraction, removal, restoration, or replacement involving either land or water.

2. Defense Costs

a. Coverage

The insurance company has the option to defend suits brought against the named insured that are due to loss or damage to covered property but only when caused by a covered peril. It can investigate and settle such claims or suits.

b. Coverage Limitation

The insurance company is not obligated to defend once the limit has been paid based on either a judgment or written settlement.

c. You Must Not

The named insured is not permitted to interfere with the insurance company's actions or negotiations for a settlement. It cannot admit liability for a loss, settle a claim, or incur any expense related to the claim unless the insurance company's provides written consent for it to do so.

d. Covered Expenses

The insurance company pays seven specific expenses related to investigating or defending a suit it defends. These expenses are not subject to a deductible.

• Expenses the insurance company incurs to investigate or defend a suit
• Up to $250 per day for the named insured's lost salary as a result of time spent away from the business at the company's request
• Expenses the named insured incurs at the company's request
• Costs the named insured must pay as a result of any suit the company defends
• Interest that accumulates after a judgment is entered until the insurance company pays its part of the judgment
• Interest awarded against the named insured before a judgment is entered. However, if the insurance company offers to settle a suit, it does not pay any interest that accumulates after the date of its offer.
• Costs of bonds to release attachments. The company is not required to actually furnish the bonds.

Note: Defense costs are part of the limit of insurance, not in addition to it. This means that amounts spent on defense reduce the amount of insurance available to pay the actual loss or damage.

3. Emergency Removal

This covers direct physical loss or damage to covered property while it is moved or stored elsewhere in order to attempt to avoid loss or damage from a covered peril. Coverage applies for up to 365 days after the property is first moved but does not extend past the expiration date. The number of days can be increased.

4. Fraud and Deceit

The insurance company covers theft of covered property when the named insured or its agents, consignees, or customers give the property away. This applies in cases where person(s) falsely represent themselves as the proper persons to receive the property. It also applies in cases where fraudulent bills of lading or other shipping receipts are presented or is due to the use or electronic hardware or software. The most paid in any one occurrence is $1,000. This limit can be increased.

Provisions That Apply To Supplemental Coverages

There are four supplemental coverages. The limit for each is the limit for the supplemental coverage unless there is a limit for that coverage on the schedule of coverages. Limits for any supplemental coverage are separate from and not part of the applicable limit for covered property.

The limit available for coverage described under a supplemental coverage is the only limit available for it. It is not the total of the limit for a supplemental coverage and the limit for covered property. The limits are not added to or combined with limits for any other supplemental coverage or coverage extension and are not subject to any coinsurance provisions that apply elsewhere in the coverage form.

1. Earned Warehouse Charges

The insurance company pays warehouse charges owed to the named insured that it cannot collect because of direct physical loss or damage to covered property by a covered peril. The damage is such that the property owner refuses to pay the charges. The most paid in any one occurrence is $5,000. This limit can be increased.

2. Newly Acquired Warehouse

Coverage applies to direct physical loss or damage by a covered peril to covered property at warehouses acquired during the policy period. Coverage applies for up to 60 days after the acquisition or until the acquisition is reported to the insurance company, whichever occurs first. Coverage does not extend past the expiration date. The most paid in any one occurrence is $50,000. This limit can be increased. Additional premium is due from the date the warehouse is acquired.

3. Pollutant Cleanup and Removal

a. The insurance company pays the named insured's expenses to extract pollutants from land or water if their release or discharge was caused in any way by a covered peril that occurred during the policy period.

b. The expenses to extract pollutants are paid only if reported to the insurance company within 180 days of the date of loss.

c. Costs related to testing, evaluating, observing, or recording pollutants are not covered but the costs of testing necessary to extract pollutants from land or water are covered.

d. The most paid is $10,000 for all such expenses caused by a covered peril that occurs during each separate 12-month policy period, unless there is a different limit on the schedule of coverages.

4. Rewards

The insurance company pays a reward for information leading to a conviction for arson, theft, or vandalism if the conviction involves a covered loss caused by arson, theft, or vandalism. The most paid in any one occurrence for a reward for information is $1,000, regardless of the number of persons providing information. This limit can be increased.

Coverage applies to risks of direct physical loss or damage unless the loss is limited or caused by an excluded peril.

1. The first group of exclusions is essentially absolute. Subject to specific exceptions, loss or damage by each is totally excluded, regardless of any other cause or event that contributes to a loss, either concurrently or in any other sequence. The insurance company does not pay for any direct or indirect loss or damage caused by or resulting from any of these events.

a. Civil Authority

There is no coverage for loss resulting from the order of any civil or government authority. This includes (but is not limited to) seizure, confiscation, destruction, or quarantine of property. Coverage does apply for loss or damage caused when a civil authority destroys property in order to prevent the spread of fire. However, that fire must be the result of a covered peril.

b. Nuclear Hazard

The insurance company does not insure against loss or damage caused by or resulting from any nuclear reaction, radiation, or contamination, whether the nuclear incident was controlled or not, or was caused by any means. Any loss caused by the nuclear hazard is not treated as a loss caused by fire, explosion, or smoke. However, coverage applies to direct loss or damage caused by fire that results from the nuclear hazard.

c. War and Military Action

The insurance company does not pay for loss or damage caused by any act of war. This means undeclared and civil war or warlike action by a military force is not covered. All actions taken to hinder or defend against an actual or expected attack by any government or sovereign authority that uses military personnel or other agents are also not covered. Acts of insurrection, rebellion, revolution, or unlawful seizure of power are not covered and any action any government authority takes to prevent or defend against any such acts are also not covered. If any action within the terms of this exclusion involves nuclear reaction, radiation, or contamination, this exclusion applies in place of the nuclear hazard exclusion.

2. The second group of exclusions applies to loss or damage caused by or resulting from any of the following loss events. Some of these exclusions have exceptions, conditions, or limitations that should be noted and reviewed carefully. The insurance company does not pay for any loss or damage caused by or resulting from any of these events.

a. Animals and Fumigation

There is no coverage when insects, rodents, and other animals cause damage. In addition, coverage does not apply when damage is caused by attempts to eliminate them through fumigation or spraying.

Note: Examples are mice, rats, cockroaches, spiders, ants, centipedes, and ticks. Each is characterized by destructive habits that cause damage, such as gnawing and nibbling.

b. Contamination or Deterioration

Loss or damage caused by contamination or deterioration is excluded. This includes corrosion, decay, fungus, mildew, mold, rot, rust, or any quality, fault, or weakness in covered property that causes it to damage or destroy itself.

c. Cancellation of Lease

There is no coverage for loss due to a lease, contract, or order lapsing or being cancelled or suspended.

d. Criminal, Fraudulent, Dishonest or Illegal Acts

Coverage does not apply to loss caused by or that results from criminal, fraudulent, dishonest, or illegal acts, committed alone or in collusion with another, by any of the following:

• The named insured
• Others with an interest in the property
• Others to whom the property has been entrusted

This exclusion does not apply to covered property in the custody of carriers for hire.

• The named insured's partners, officers, directors, trustees, joint venturers, members, or managers (as applicable) based on the named insured’s type of business organization.
• Employees of any of the above groups. Employees are not covered even if the act occurs when they are not considered to be working.

Coverage continues to apply if employees destroy property but it does not apply if employees steal.

e. Loss of Use

There is no coverage for loss that results from delay, loss of use, or loss of market.

f. Missing Property

Unexplained or mysterious disappearance of covered property is excluded when there is no physical evidence to indicate what happened to it and the only proof that a loss occurred is based on an audit or physical inventory. This exclusion does not apply to covered property in the custody of carriers for hire.

g. Pollutants

There is no coverage for loss or damage caused by or resulting from any release, discharge, seepage, migration, dispersal, or escape of pollutants, unless the event is caused by a specified peril, and except for the coverage provided under Supplemental Coverages–Pollutant Cleanup and Removal. Coverage applies to the resulting loss or damage to covered property caused by a specified peril.

h. Processing, Work and Packaging

Coverage does not apply to loss or damage caused by or resulting from processing of, work on, or packaging or repackaging covered property.

i. Spoilage

Loss to perishable stock caused by spoilage is excluded. If spoilage results in a specified peril, coverage applies to the loss or damage caused by that specified peril.

j. Temperature/Humidity

Loss or damage to covered property caused by dryness, dampness, humidity, changes in, or extremes of temperature is excluded.

k. Voluntary Parting

Loss or damage to covered property voluntarily given to others is excluded. There is no coverage even if the surrender was due to a fraudulent scheme, trick, or false pretense. There is an exception under Coverage Extension–Fraud or Deceit.

l. Wear and Tear

Loss or damage caused by wear, tear, marring, or scratching is excluded. However, if any of these events results in a covered peril occurring, the loss or damage caused by or resulting from that peril is covered.

Note: Wear and tear is damage, diminishment in value, or erosion due to long or hard use or exposure, including breakdown over time and eventually becoming unusable because of previous use. This includes the tendency of property to pull apart or break down into pieces because of forces applied to it.

1. Notice

The named insured must give prompt notice of a loss to the insurance company or its agent. The notice must include a description of the property lost or damaged. If a criminal act caused the loss, the appropriate law enforcement agency must also be notified.

Note: The insurance company has the right to require that the notice be in writing.

2. You Must Protect Property

During and after a loss, all reasonable steps must be taken to protect covered property from further loss. The insurance company pays reasonable costs incurred to do so provided the named insured maintains accurate records to substantiate the costs. Paying these costs is not in addition to the policy limits. There is no coverage for any repairs or emergency measures performed on property not already damaged by a covered peril.

Note: Such costs incurred reduce the amount available to pay the actual loss.

3. Proof of Loss

The named insured must complete and return the insurance company's prescribed proof of loss forms within 60 days of its request to do so. The information provided must include the time, place, and circumstances surrounding the loss and information on any other insurance coverage that may apply. It must also include the interest of the named insured and others with respect to the property involved, including lienholders, loss payees, and mortgagees. Any changes in title to the property during the policy period must be disclosed, in addition to providing any other reasonable information the company may require to adjust and settle the loss.

4. Examination

Examination under oath may be required in matters that relate to the loss. The insurance company may request these examinations on multiple occasions but such requests must be reasonable. If multiple persons are examined, the company has the right to examine each individual separately.

5. Warehouse Receipt

The named insured must give the insurance company its copy of the warehouse receipt it issued for the property involved in a covered loss.

6. Records

The named insured must maintain and produce any records related to the loss. The insurance company must be permitted to make copies and take extracts of them as often as it reasonably requests. Records include (but are not limited to) tax returns and bank microfilms of all related cancelled checks.

7. Damaged Property

Both damaged and undamaged property must be made available for the insurance company's inspection as often as reasonably necessary. It must also be allowed to take samples of the property to the extent necessary to adjust and settle the loss.

8. Volunteer Payments

If the named insured voluntarily makes any payments, assumes any obligations, pays or offers rewards, or incurs any other expenses without the insurance company's express approval, it does so at its own expense. The only exceptions are those costs incurred to protect property as outlined in item 2. of this section.

9. Abandonment

Abandoning damaged property to the insurance company without its written consent is prohibited.

10. Cooperation

The named insured must cooperate with the insurance company and perform all acts the coverage form requires.

1. Actual Cash Value

The value of covered property is its actual cash value at the time of loss. Actual cash is replacement cost new minus depreciation.

2. Pair or Set

The value of a loss that involves damage or loss of one part of a pair or set is based on a reasonable proportion of the value of the entire pair or set. However, the loss of one part of a pair or set is not considered a total loss.

Note: This recognizes that the value of the whole is greater than the value of individual parts but that the remaining parts still have value as separates.

3. Loss to Parts

The value of a lost or damaged part of property that consists of several parts is the cost to repair or replace only the lost or damaged part.

1. Insurable Interest

The insurance company does not pay more than the named insured's insurable interest in the covered property at the time of loss.

2. Deductible

The insurance company pays only the amount of loss that exceeds the deductible amount on the schedule of coverages.

3. Loss Settlement Terms

a. Subject to other items in this section, the insurance company pays the least of:

• The amount determined under Valuation

• The cost to repair, replace, or rebuild the property with material of similar kind and quality to the extent possible
• The limit that applies to the covered property

b. The amount the company pays is limited to not more than the amount of the named insured's liability stated on the warehouse receipt.

c. The insurance company does not pay more than the catastrophe amount, regardless of the number of warehouse locations.

5. Insurance under More Than One Coverage

If two or more coverages in the coverage form apply to the same loss, the insurance company does not pay more than the value of the actual claim, loss, or damage sustained.

6. Insurance under More Than One Policy

a. Proportional Share

If the named insured has other coverage subject to the same terms as this coverage form, this coverage form pays only its share of the covered loss. That share is the proportion that its limit of insurance bears to the limits of insurance on all insurance that covers on the same basis.

b. Excess Amount

If other coverage is available that pays for the loss (other than as described in item 6.a.), this coverage form pays on an excess basis. This means that only the amount of covered loss that exceeds the amount due from the other coverage (whether collectible or not) is paid. Any payment is subject to the applicable limit of insurance.

1. Loss Payment Options

a. Our Options

The insurance company has four loss payment options if a covered loss occurs.

• Pay the value of the lost or damaged property
• Pay the cost to repair or replace the lost or damaged property
• Rebuild, repair, or replace the property with similar property, to the extent possible, and within a reasonable period of time
• Take any part or all of the property at the agreed on or appraised amount

b. Notice of Our Intent to Rebuild, Repair, or Replace

The insurance company must notify the named insured of its intent to rebuild, repair, or replace within 30 days after receiving a properly completed proof of loss.

2. Your Losses

a. Adjustment and Payment of Loss

The insurance company adjusts all losses with and pays the named insured, unless another loss payee named in the policy is involved.

b. Conditions for Payment of Loss

The insurance company pays a covered loss within 30 days after it receives a properly prepared proof of loss and the amount of loss is established. The amount of loss is determined through either a written agreement between the company and the named insured or after an appraisal award is filed with the company.

3. Property of Others

a. Adjustment and Payment of Loss to Property of Others

The insurance company can adjust and pay losses that involve property of others to either the named insured acting on behalf of the property owner or directly to the property owner, at its discretion.

b. We Do Not Have To Pay You if We Pay the Owner

When the insurance company pays the property owner, it is not obligated to pay the named insured. In addition, if the property owner sues the named insured, the company has the option of defending the named insured in that suit.

1. Appraisal

The insurance company and the insured may not always agree on the value of a covered claim. This condition provides one method to solve disputed claims.

Either party can request an appraisal to determine the value of a disputed claim. Once requested, the parties have 20 days to obtain their own independent and competent appraisers and supply the appraiser's name to the other party. The two appraisers then have 15 days to select a competent impartial umpire. If they cannot agree on an umpire within 15 days, either can request that a judge in the court of record in the state where the property is located appoint one.

The appraisers then determine the value of the claim. Any differences are submitted to the umpire. Once any two of the three parties agree, the amount of loss is set.

Each party pays its own appraiser. Both parties share the cost of the umpire and other expenses.

2. Benefit to Others

The insurance provided does not directly or indirectly benefit any party that has custody of the named insured's property.

3. Conformity with Statute

Any condition in this coverage form that conflicts with any applicable law is amended to conform to that law.

4. Estates

Note: This condition applies only if the named insured is an individual.

a. Your Death

If the named insured dies, the person who has custody of the named insured's property is an insured until a qualified legal representative is appointed. The named insured’s legal representative becomes an insured once appointed. Both are insureds but only with respect to the property insured under this coverage form.

b. Policy Period Is Not Extended

This coverage does not extend past the policy expiration date.

5. Misrepresentation, Concealment or Fraud

This coverage is void if any insured at any time willfully concealed or misrepresented a material fact that relates to the insurance provided, the property covered, or its interest in the property. It is also void if fraud or false swearing by any insured took place concerning the insurance provided or the property covered.

Note: The named insured must deal with the insurance company honestly. If it intentionally misrepresents or conceals a material fact or information, its rights of recovery may be voided. This means that the insurance is treated as simply having never existed versus a particular claim being denied.

6. Policy Period

Only covered losses that occur during the policy period are paid.

7. Recoveries

Payment of the loss does not end the obligations of the insured and the insurance company toward one another. If the insurance company pays a loss and the lost or damaged property is subsequently recovered (or the parties responsible for the loss pay for it), additional provisions apply.

Either party that recovers property or payment must inform the other. Recovery expenses incurred by either party are reimbursed first. If the insured keeps the recovered property, it must refund the amount of the claim the insurance company paid (unless the company agrees to a different amount). If the claim paid is less than the agreed loss due to application of a deductible or other limitations, any recovery is prorated between the named insured and the insurance company, based on the company's respective interest in the loss.

8. Restoration of Limits

Payment of a claim does not reduce the limit available for future claims.

9. Subrogation

The insurance company acquires the named insured's rights of recovery from third parties after it pays a loss. The named insured must assist the insurance company in securing those rights. If it hinders or impairs the company's rights of subrogation, the company is not obligated to pay the loss.

Note: The named insured can agree in writing to waive recovery rights from others before a loss occurs.

10. Suit against Us

The insurance company cannot be sued by anyone for any coverage until all the terms of the coverage form have been met. Suits must be brought within two years after the insured first had knowledge of a loss. If a state law invalidates this condition, any suit brought must comply with the provisions of that law and begin within the shortest period of time allowed by law.

Note: It is normal for a basic coverage form to be modified by mandatory state-specific endorsements that address issues that relate to that specific state.

11. Territorial Limits

Covered property must be located in the United States, its territories and possessions, Canada, or Puerto Rico in order for coverage to apply.

AAIS has developed the following endorsements and schedules for use with the Warehouse Legal Liability Coverage Form.

IM 7662–Inventory Shortage Coverage

This endorsement is needed because of the Missing Property exclusion in the coverage form. It covers the named insured's legal liability for covered property that has disappeared when a scheduled inventory reveals the disappearance.

IM 7663–Defense Limit Endorsement

This endorsement provides a sub-limit for defense costs. It deletes and replaces Coverage for Defense Costs with the limit for defense costs being separate from, not part of, the limit for coverage described under Property Covered.

IM 7665–Flood and Earth Movement Exclusion

This restrictive endorsement excludes earth movement, volcanic eruption, and flood coverages.

IM 7666–Reporting Conditions Endorsement

This endorsement adds reporting conditions.

IM 7667–Reporting Schedule–Warehouse Legal Liability

This schedule is used with IM 7666–Reporting Conditions Endorsement. It states the reporting period, adjustment period, rates, deposit premium, and minimum premium that applies when the coverage form is amended to be on a reporting basis.

IM 7668–Leakage of Refrigerant Exclusion

This exclusion is used with IM 7669–Cold Storage Coverage. It excludes coverage for loss or damage due to leakage of a coolant or refrigerant from a cooling or refrigeration system.

IM 7669–Cold Storage Coverage

This endorsement covers direct physical loss or damage by spoilage to property of others consisting of perishable stock at a covered warehouse location. The Cold Storage Limit, Catastrophe Limit, and Cold Storage Deductible are entered in the spaces provided on the endorsement schedule.

IM 7671–Spoilage Coverage

This endorsement covers loss or damage that results from spoilage. The spoilage must be caused by a covered peril selected on IM 7672–Spoilage Schedule–Warehouse Legal Liability. The covered perils include Equipment Breakdown, Refrigeration Contamination, and Power Disruption.

IM 7672–Spoilage Schedule–Warehouse Legal Liability

This schedule of coverages is used with IM 7671–Spoilage Coverage. It has spaces to enter the spoilage limits, the separate spoilage deductible, any additional conditions, the insured perils that apply, and a list of covered warehouse locations.

IM 7673–Additional Warehouse Schedule–Warehouse Legal Liability

This schedule is used with IM 7655–Schedule of Coverages–Warehouse Legal Liability to list additional covered warehouses and their limits.

IM 7674–Processing Work Coverage

This endorsement is used to cover loss or damage to covered property in the named insured's care, custody or control to be assembled, packaged, repackaged, or packed. Coverage applies at a warehouse listed on IM 7675–Processing Work Schedule–Warehouse Legal Liability and while in transit to and from a listed warehouse.

IM 7675–Processing Work Schedule–Warehouse Legal Liability

This schedule is used with IM 7674–Processing Work Coverage to describe covered property, the location, and to enter the applicable coverages, limits, and deductible.

IM 7676–Additional Covered Locations Schedule–Processing Work Coverage

This schedule is used with IM 7674–Processing Work Coverage, to list additional locations and limits.

IM 7677–Property Excluded

This endorsement is used to exclude certain property from coverage. Manufactured tobacco products, alcoholic beverages, narcotics, and prescription drugs can be selected on the endorsement schedule but other property can also be scheduled.

Note: Some insurance companies may use additional endorsements that broaden or limit the basic coverage forms. Some examples include limited or named perils in place of all risk perils or full perils coverage instead of only legal liability coverage. Other endorsements may affect valuation, loss adjustment and reporting, adjusting, and premium payment methods.

Warehouse owners and operators are responsible for damage caused by their negligence as bailees to goods of their customers stored in their warehouses. Virtually all warehouses fall into one of four categories:

• Public warehouses offer their services for a price to virtually anyone.
• Private warehouses offer services to the retail, wholesale, distributing, or manufacturing operation that owns or controls them.
• Bonded warehouses provide storage services for imports pending payment of import taxes.
• Specialized warehouses provide storage facilities and services for certain types of goods. Refrigerated warehouses and warehouses that store manufactured tobacco, liquor, wine, and other alcoholic beverages are examples that fall into this category.

In recent years, logistics has caused an evolution in traditional warehouse legal liability and transportation exposures. Logistics involves integrating transportation, storage, handling, and processing of merchandise from the point of manufacture to the final location for sale or distribution most efficiently and cost effectively. In addition, logistics has become part of the world of electronic commerce. This introduces time element issues not historically a part of warehousing or transportation insurance. Providers of logistical services are integrated managers of services, some or all of which may be outsourced to others.

Warehouse operators and transportation companies now provide numerous value-added functions to the traditional operations of transportation and warehousing. This includes pick up and packing services in addition to processing and cross-docking (as defined at the end of this section). All services provided for moving goods may be combined under one contract for services or bill of lading. Since liability exposures are undergoing fundamental changes as operations and services evolve, a need has developed to understand who is responsible for liability for each part of the transaction. In some cases, the Warehouse Legal Liability Coverage Form may not completely address all of the exposures that logistics operations present. The language of the coverage form must be compared with the actual operations the logistic party performs and copies of their contracts obtained.

Several general factors are important to effectively and successfully underwrite warehousing risks.

• Financial underwriting is a key element in underwriting warehouses. Past financial success usually effectively predicts future financial stability. In addition, a risk on good financial footing is less tempted to do business with clients that may be of questionable character and possibly involved with illegal or contraband property. Storing such property knowingly or not can jeopardize other stored property and the operation of the warehouse as a whole.
• Past experience is another key factor. The reputation, knowledge, and past experience of a warehouse operator are the elements that the party that needs to store merchandise must consider when looking for warehousing service. The property stored should be as important to the warehouse operator as to the owner, since it represents value and income to both parties. At least three years of experience is the general guideline to follow when looking for experienced warehousing operations.
• Fire, theft, water damage, and negligent operation of forklifts are the most common causes of loss in warehousing operations. Fire is the first and most important cause of loss to consider. The traditional elements of construction, occupancy, protection, and exposure must be analyzed carefully and completely. Warehouses with multiple stories are very common and these risks must have effective firebreaks between floors and vertical fire spread should be minimized as much as possible. Stairways should be fully enclosed with fully operational rated fire doors and properly sealed elevators to prevent the spread of fire. Construction is critical. Frame construction should not exceed two stories. Electrical factors are crucial and extremely important, especially in specialized warehouses where refrigeration and other climate control is required. Wiring must be up-to-date, enclosed in conduit, and appropriate for the occupancy and exposures presented by the operations conducted. Extension cords or other temporary wiring devices should not be used. The warehouse should never have any current overrides in the circuit breakers or use improper fuses.
• The nature of the merchandise stored is also a crucial element. Paint, aerosols, glues, and similar flammables must be isolated and segregated from the stock of general merchandise. They should be stored in proper and approved containers when possible. Additional temperature controls and extra fire suppression or extinguishing devices may be necessary. Such goods should be stored in completely separate and removed buildings, far enough away from the general merchandise storage facilities so that both storage arrangements are not involved in a common fire event. Knowing the nature of the property stored, its characteristics, and how to deal effectively with it are critical to a safe and efficient warehousing operation.
• Public fire protection is as important as the type of property stored. Fire department response time and the availability of public and private water supplies are major considerations. The fire department available should be adequately staffed and equipped to handle a possible major conflagration. Most warehouses are large and could overwhelm an under-manned and inadequately equipped department or one located too far away to get to a fire location quickly.
• Private fire protection is equally important and may be more important than public protection in certain cases. Automatic sprinkler systems are needed if storage involves significant values. Rack sprinkler systems and deluge systems should be considered in applications requiring additional protective factors. Rate-of-rise heat detectors should be employed so that potential fire conditions can be monitored and responded to before a fire actually breaks out. Similarly, with specialized warehouses that have refrigeration equipment, refrigerated storage areas should have temperature alert systems to warn of impending changes before they actually occur.
• Surrounding exposures must be evaluated, understood, and dealt with if possible and where necessary. Operations conducted in crowded urban surroundings could present an external loss potential more significant than what goes on inside the warehouse itself. A fire or conflagration in an adjacent building that a warehouse operator has absolutely no control over could be the cause of its own operations being destroyed. These exposing occupancies must be recognized and measured to address a worst-case scenario and to establish the measures to take to reduce or eliminate loss or damage to the facility.
• A large warehouse filled with a variety of interesting or attractive merchandise is a natural target for theft. The warehouse operator must take the appropriate steps to minimize access to the premises by unauthorized parties in order to reduce the chances of pilferage, shortages, and outright theft. All points of access, including any and all doors, windows, skylights, and roof openings must be protected with adequate locks and possibly burglary and theft systems and alarms. In general, the nature of the goods stored determines the amount of premises protection and security required.
• Goods should be stored on pallets as a minimum and some other means used to keep them off the floor. The extent and value of property stored in basements, sub-basements, and otherwise below grade should be minimized and limited. Property highly susceptible to water damage should never be located near water or sewer lines. Basement storage areas should be equipped with a water detection system.
• It is hard to imagine anything more embarrassing, costly, and easy to avoid as a forklift damaging covered property of others. Forklifts must receive constant periodic preventive maintenance to ensure that they operate properly. Forklift operators should be experienced in handling the types of goods present in a particular warehousing operation and receive periodic updated training to keep them sharp and to enhance their skills and abilities.
• Legal liability does not include most catastrophic perils, such as flood, earthquake, windstorm, and the like. Commonly referred to as acts of God, these perils are outside a warehouse operator's responsibility but it still has responsibilities related to these perils that could involve it in a legal liability loss situation. Since the coverage form insures these perils, the insurance company must be certain that the warehouse operator takes a common sense approach to conduct its business to minimize the effects of one of these perils if it occurs. Where flood might be a factor, goods susceptible to water damage should be stored above grade or basement levels. Where earthquake is a factor, construction should be earthquake resistant or the goods stored inside should not be as susceptible to damage if a building collapses because of an earthquake event. Construction should be such that the building can withstand a strong windstorm or rainstorm. Depending on the location, some external exposures to loss are more significant than others and the building's construction and the way business is conducted should reflect it and as much as possible minimize or eliminate the chances of loss.

Coverage depends on the language in the warehouse receipt. These should be completed in a structured and consistent manner and follow prescribed procedures to guarantee uniformity and accuracy. There is no coverage without a warehouse receipt on the merchandise stored and nothing should be stored without one. Receipts should be duplicated and the duplicates stored off premises so that losses can be handled accurately and promptly if the copy kept at the warehouse location itself is lost or destroyed. Both the customer and the named insured should be able to produce their copies of the storage receipt if a loss occurs.

Note: Cross-docking involves unloading goods on an incoming semi-trailer truck or rail car just to re-load them onto outbound trailers or rail cars. There is little or no storage. The reason for the change is to move from one conveyance to another, to separate goods intended for different destinations, or to combine goods from different origination points. There is usually little or no warehousing. Many cross-docking operations require large staging areas where inbound goods are sorted, consolidated, and stored until the outbound shipment is loaded, complete, and ready to ship. Cross-dock distribution centers usually require less than a day to complete the staging. Distribution centers that hold goods for more than a day are considered to be warehouses. Cross-dock operations are used to decrease inventory shortages because the flow of goods between the supplier and the manufacturer is streamlined.