AG 0188–WAREHOUSE OPERATORS LEGAL LIABILITY COVERAGE
(February 2025)
Warehouse operators face significant legal liability exposures because their operations are based on holding property of others in a secure location. AAIS and ISO have non-filed Inland Marine coverage forms designed to meet their unique needs.
Many agribusiness operations include warehouse property of others, so this form was developed to allow the owned property and the warehoused property of others coverages to work together and not require separate inland marine coverage.
Related
Articles:
AAIS Warehouse Legal Liability Coverage Form
ISO Warehouse Operators Legal Liability Coverage Form
The insurance company provides the coverage described in this endorsement during the policy period in exchange for the named insured's premium payment. This is subject to the Declarations, CL 100–Common Policy Conditions and the following sections of AG 0100–Agribusiness Property and Income Coverage Part:
· Definitions
· What Must Be Done In Case Of Loss
· Loss Payment
· Other Conditions
This endorsement has its own versions of the following sections:
· Agreement
· Coverage
· Property Covered
· Property Not Covered
· Additional Coverages
· Perils Covered
· Perils Excluded
· Valuation
· How Much We Pay
AG 0189–Warehouse Operators Schedule must be attached; it provides the information this endorsement requires. The covered location and a description of the warehouse must be entered in the spaces provided. Entries are also required for limits of liability that apply to dry and cold storage, earned warehouse charges, and a catastrophe limit. The deductible that applies to this coverage endorsement must also be entered.
These additional definitions apply to only the coverages this endorsement provides.
This means judicial proceedings used to determine liability and damages for loss to covered property. A court is not required to be involved because arbitration proceedings, which the named insured may be required to submit to, are also considered within this definition.
This is
vital to the coverage provided in this form. It is the record that a
transaction has occurred. The named insured issues the receipt to the customer
in acknowledgment of the property being
stored for that customer in the named insured’s warehouse. Vital information that
must be contained within that receipt includes a description of the property
and the weight or number of units stored. The amount or dollar value of
liability the named insured assumes for that property is also included on the
receipt.
This coverage form covers the named insured's legal liability for loss to covered property. The only property covered is that which has been entrusted to the named insured and is in its care, custody or control. The coverage provided is limited to amounts the named insured is legally obligated to pay as a warehouse operator. The warehouse receipt established by the named insured and accepted by the customer establishes the amount of the legal liability.
An unusual part of this endorsement is that the insurance company has not only the right but also the duty to defend any suit brought against the named insured relating to a loss involving covered property. The insurance company is in charge and, therefore, decides how and when to investigate and whether to settle or defend a claim or suit. The insurance company’s obligation to defend ends once it pays the limit based on a judgment or settlement.
The named insured cannot settle a claim or incur related expenses, nor admit liability, without written consent from the insurance company. The named insured is also not allowed to interfere in the negotiations between its customer and the insurance company.
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Example: Jacob has been a loyal customer of Family Farm Warehouse for
over 20 years. A loss occurs, and Jacob files a claim against Family Farm
Warehouse. Family Farm’s insurance company is negotiating with Jacob but
Jacob is unhappy with the negotiations. He complains to Family Farm, threatening
to never use them again. Family Farm pressures its
insurance company to resolve the issue. When the insurance company discovers
that Family Farm has been supplying information to Jacob that undermines the
negotiations, they deny coverage due to the interference. Family Farm must
now settle the claim directly with Jacob, but it cannot expect any
compensation from the insurance company. |
Property is covered only if it meets all the following conditions:
· Property of others
· Stored at a covered location
· Described in a warehouse receipt issued by the named insured
Direct physical damage to the property described above is covered only when caused by a covered peril.
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Example: Tony issued a warehouse receipt
to Millie that lists 1,000 pounds of frozen poultry. A loss occurs, and
Millie submits a claim for 1,000 pounds of frozen beef. The beef is not
covered because only poultry was listed on the warehouse receipt. |
The following property is excluded.
These are described as bills, deeds, evidence of debt, and accounts.
There is no limitation or expansion, so aircraft and watercraft are not covered.
All art is excluded. There are no exceptions. Paintings and statuary are examples of art, but this exclusion applies to all artistic property.
This is liability for property the named insured assumes beyond what the law requires.
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Example: Barry is trying to build
confidence and attract customers to his new warehouse, so he advertises he
will assume twice the required legal liability of any property he stores. This
may attract business, but Barry’s insurance company pays only up to Barry’s
legal liability. Barry is responsible for any additional amounts. |
Insurance is not designed to cover illegally owned property or part of illegal transportation since that would be against public policy.
This is any of the following:
· Jewelry, precious, and semi-precious stones
· Gold, silver, and platinum
· Other precious metals and alloys
· Furs and fur-trimmed garments
A furrier’s policy can cover stored fur, while a jeweler’s block can cover stored jewels, stones, and metals.
Live animals that are property of others cannot be covered here but could be insured under the livestock (AG 0140) or poultry (AG 0152) endorsements.
This is any of the following:
· Money, currency, and coins
· Bank notes and money orders
· Travelers checks and bullion
· Securities
This policy is for the benefit of others, not for owned property of the named insured. Therefore, even if the named insured stores property in the warehouse and has a receipt, it is not covered.
Property that is being moved from one place to another is not covered even if the bill of lading states that the property is storage-in-transit.
If the named insured is merely leasing space and not acting as a warehouse keeper, there is no coverage for the property of others in the leased space.
The only property items covered are the items specifically listed on the warehouse receipt. There is no coverage if items are left off or a receipt was never issued. The receipt is the proof of coverage.
The following items are covered as part of the defense expense.
· Incurred expenses during suit investigation or defense
· The loss of salary for the time away from work, if the named insured is asked to assist on the case
· Any expense that the named insured incurs because the insurance company requests that it be incurred. There is no coverage if the named insured decides to incur without consulting with the insurance company.
· Once the judgment is entered, all interest that accumulates until the insurance company pays; and,
· The cost of purchasing an appeal or attachment bond, but the insurance company is not required to secure or supply the bond.
There is no deductible, but it is important to note that these expenses are in addition to the limit of insurance provided for the property. This means that payments for these expenses do not reduce the amount of coverage available to pay for the loss.
This coverage is virtually identical to the Debris Removal coverage that AG 0100 provides. The cost to remove debris of covered property after a covered loss is limited to 25% of the amount paid for the direct loss. An additional limitation is that the combined debris removal expense plus the direct physical loss cannot exceed the damaged property’s limit of insurance. However, $5,000 is the additional amount of coverage beyond the 25% cap or the limit of insurance.
Debris removal expense does not include costs to extract pollutants from land or water or the costs to remove, restore, or replace polluted land or water.
A very important condition is that debris removal expenses must be reported to the insurance company in writing within 180 days after the direct physical loss to covered property.
Related Article: AG 0100–Agribusiness Property and Income Coverage Part Analysis
Note: Covered expenses
include demolition, using a wrecking ball, transporting debris, blasting a
damaged structure to the ground, and removing damaged inventory or equipment.
The coverage is virtually identical to the Emergency Removal coverage that AG 0100 provides. The insurance company pays for the loss of property being moved or stored at a location away from the covered location to protect it from an anticipated covered peril. Coverage applies for up to 10 days (instead of 30 in the AG 0100) after the property is first moved but does not extend past the expiration date. There is no additional insurance because this is merely moving property from one location to another temporarily.
Related Article: AG 0100–Agribusiness Property and Income Coverage Part Analysis
These are charges that customers owe to the named insured that they cannot collect because of a covered direct loss to covered property. Payment is subject to the Earned Warehouse Charges limit on the Warehouse Operators Schedule. The most the insurance company pays if there is no limit on the Warehouse Operators Schedule is $5,000.
This is additional insurance. It is added to a covered location’s limits.
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Example: Wally’s Warehouse experienced a
loss on May 15. Wally billed his customers for the storage period from May 1
to May 15. However, the customers refused to pay because the new warehouse,
where they moved their property after the loss, insisted that they pay for
the entire month of May, despite only storing their property from May 15 to
May 30. Since the charges for the period Wally earned were not paid, the
insurance will cover the loss of the earned warehouse charges. |
Direct physical loss caused by a peril that is not excluded is covered. It is up to the insurance company to prove an excluded peril caused a loss. If the company cannot do so, coverage exists.
The first group of exclusions applies regardless of whether or not the loss event results in widespread damage or affects a significant geographical area. Subject to specific exceptions, each is completely excluded, regardless of any other cause or event that contributes to a loss, either concurrently or in any other sequence. The insurance company will not pay for any direct or indirect loss or damage caused by or resulting from any of these events.
Loss or damage resulting from the actions of any civil authority is not covered. Examples of such loss or damage include seizure, confiscation, destruction, or quarantine of property. However, there is an exception to this exclusion: if a civil authority orders the destruction of property to prevent a fire from spreading, the loss may be covered, but only if the fire was caused by a covered peril.
Coverage does not apply to any loss caused by or that results from nuclear reaction, nuclear radiation, or radioactive contamination. Coverage does not apply if the event is caused by controlled, uncontrolled, natural, accidental, or artificial means.
Loss resulting from a nuclear hazard is not classified as loss caused by fire, explosion, or smoke. However, there is an exception for direct loss caused by fire resulting from the nuclear hazard.
Note: Coverage for nuclear risks can be obtained through associations that
offer nuclear umbrella coverage.
IMPORTANT
NOTE: The war exclusion in this form is deleted and replaced by a
mandatory exclusion AG 0135–Exclusion – War and Military Action. Because the
exclusion is mandatory, the AG 0135 is analyzed in place of the exclusion in
the form.
Loss or damage that is caused either directly or indirectly by the following activities are not covered:
The exclusion outlined in this endorsement is absolute and supersedes the Nuclear Hazard exclusion regarding any action that falls within the terms of the endorsement and involves a nuclear reaction, radiation, or radioactive contamination associated with the Nuclear Hazard exclusion.
Note:
This last paragraph is very
important because the Nuclear Hazard exclusion provides a limited amount of
coverage for fire due to specific nuclear events; however, fire is totally eliminated
under this exclusion.
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.
There is no coverage for loss or damage resulting from contamination or deterioration. This includes issues such as bin burn, corrosion, decay, fungus, mold, mildew, rot, and rust. Additional examples are changes in grade or condition, organic heating of grain, seeds, or other agricultural products, as well as any inherent quality, fault, or weakness in the covered property that causes it to damage or destroy itself.
However, coverage applies if contamination or deterioration is caused by a specified peril or breakage of building glass that subsequently causes loss or damage.
Specified perils are defined in the AG 0100 as follows:
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· aircraft |
· sonic boom |
· vandalism |
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· civil commotion |
· lightening |
· vehicles |
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· explosion |
· riot |
· volcanic action |
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· falling objects |
· sinkhole collapse |
· water damage |
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· fire |
· smoke |
· weight of ice, snow or sleet |
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· hail |
· leakage from fire extinguishing equipment |
· windstorm |
Loss caused by criminal, fraudulent, dishonest, or illegal acts committed by any of the following is excluded:
· Named insured
o This includes partners, officers, directors, trustees, joint venturers or managers or members of a Limited Liability Company (LLC).
· Any party with an interest in the property or entrusted with the property.
· Employees or agents of any of the above, regardless of whether they are at work or not.
The above acts are excluded whether a party acts alone or in collusion with others.
It is important to note that coverage applies to situations where an employee damages insured property, but it does not include coverage for employee theft.
Coverage does not apply when liquid or gas refrigerants leak, causing humidity, dampness, dryness, or temperature changes that result in a loss.
Losses due to any of the following are excluded:
·
Business interruption or loss of market
·
Loss of use or delay
·
Any contract, order, or lease lapsing, being suspended
or cancelled
Covered property that mysteriously disappears is not covered when there is no physical evidence to indicate what happened to it. Coverage also does not apply to a shortage of property disclosed by an inventory.
Note:
This is sometimes referred to as "inventory shrinkage."
There is no coverage for loss caused by any action of pollutants unless a specified peril causes the action to begin. If a specified peril causes the loss, then it is covered.
Note: Please see above Secondary Exclusions under contamination or deterioration for a list of specified perils.
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Example: A battery acid spill eats
through the electrical insulation, and a fire begins. The damage caused by the
acid spill is not covered, but the resulting fire is covered. |
This is a warehouse operators’ policy and is meant to cover only storage. Therefore, any losses due to the covered property being worked on or processed are not covered. Breaking down large packages into smaller packages or combining different types of property into a single package are examples of such packaging that would not be covered.
Losses due to spoilage, insects, rodents, other animals, bacteria, and fumigating are all excluded.
Loss or damage because of humidity, dampness, dryness, or changes in or extremes of temperature is not covered if caused by any of the following:
· Refrigerating equipment that malfunctions or breaks down
· Error in maintaining the proper cold storage area temperature
· Incorrectly using refrigerating equipment
The insurance company does not pay for loss or damage due to either of the following:
· Voluntarily parting of property (or title to it) due to any fraudulent or false pretense, scheme, or trick
· Property transferred to a person or place other than a covered location based on unauthorized instructions
Note: This can be a major
cause of loss because property is being kept for others. If what appears to be
an authorized or legitimate warehouse receipt is presented, the property will
be released to the presenter. Procedures must be in place to prevent inappropriate
release.
Loss caused by wear and tear is excluded.
This provision applies in addition to those in AG 0100 – What Must Be Done In Case Of Loss.
The named insured must provide the insurance company with a copy of the warehouse receipt it issued for the property involved in the loss.
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Example: A fire swept through the Barns
n’ More Warehouse. Barns n’ More provided the insurance company with copies
of receipts for all property stored in the warehouse. However, the insurance
company denied Pushing Petals’ claim for items in the warehouse because Barns
n’ More did not provide a warehouse receipt for Pushing Petals’ goods. |
Covered property is valued at its actual cash value at the time of loss.
Note: Actual cash value is
not defined. It is usually considered
to be replacement cost new minus accumulated depreciation. Depreciation
is also not defined. It could be Internal Revenue Service (IRS) tax table
depreciation, depreciation as used with Generally Accepted Accounting
Principles (GAAP), or something else.
The insurance company does not cover losses exceeding the named insured's legal liability as a warehouse operator or for liabilities it has contractually assumed.
The most the insurance company pays is the loss amount that exceeds the occurrence deductible on the Warehouse Operators Schedule.
The insurance company has the option to pay all or part of a deductible to settle a loss. In that case, the named insured must promptly reimburse the company for the deductible it paid.
Loss Settlement Terms are subject to items 1., 2., 4., and 5 within this section. The insurance company pays the least of the following:
a. The amount determined under Valuation
b. The limit that applies to the covered property
c. The cost to repair, to replace, or to rebuild with similar quality material
The loss is further capped by the named insured’s liability as stated on the warehouse receipt.
The catastrophic limit stated in the Warehouse Operators Schedule is the most that will be paid for a single loss regardless of the number of locations or warehouses.
Two or more coverages in the coverage form may apply to the same loss. In that case, the insurance company does not pay more than the value of the actual claim, loss, or damage sustained.
The named insured may have other coverage subject to the same terms as this coverage form. In that case, this coverage form pays only its share of the covered loss. The share is based on the proportion of its limit of insurance carried to the limits of insurance on all policies that cover on the same basis.
The named insured may have other coverage that insures the loss other than as described above. In that case, this coverage form pays only the amount of covered loss that exceeds the amount due from that other coverage (whether collectible or not). Any payment is subject to the limit of insurance that applies.