When you bring your car into the shop, you trust that it won’t get damaged while being repaired. It’s the same as when you check your coat at a restaurant. You assume that it won’t get damaged, and if it does, you would hold the restaurant responsible and expect them to pay to repair or replace it. As a business owner, when you accept a customer’s property, whether it is a suit for laundering or a computer for repair, you may be held liable for that item if it is damaged, lost, or destroyed. Depending on the type of business and the customer items you work with, the financial consequences could be considerable. This is where Bailee’s Customer Insurance comes in.

What is Bailee’s Customer Insurance?

Bailee’s Customer Insurance, often called Bailee’s Coverage or Bailee’s Liability Coverage, is a type of inland marine insurance that covers your business for losses to customer property in your care, custody, or control. If your business ever takes possession of your customer’s property, no matter how small, Bailee’s Customer Insurance protects you. Some businesses, like an auto repair shop or dry cleaner, revolve around taking temporary possession of customer items, but even those that don’t—like any restaurant or hotel offering valet service—still may benefit from Bailee’s Customer Insurance.

What is a bailee or bailor?

A bailee is a person who takes possession, but does not own, the property of another person, typically to perform a service, like repair or even just storage. The person who entrusts you with his or her things is the bailor. The agreement that these two parties come to is called the bailment. This agreement specifies the terms of the contract and can be anything from a receipt with extensive terms dictated on the back to a claim chit from a coat check at a bar.

Examples:

• A computer repair shop owner is the bailee, and the computer owner is the bailor.
• A dry cleaner owner is the bailee, and the customer bringing in a suit to be dry cleaned is the bailor.
• A pet hotel owner is the bailee, and the customer boarding her dog is the bailor.

Note that a bailee can also be the custodian of ephemeral goods, like a portfolio of investments, or be involved in a temporary arrangement, such as overseeing a rental apartment building while the owner is away. The bailee cannot use the assets for personal reasons and must exercise reasonable care to ensure that they are kept safe and returned in good condition.

Do I need Bailee’s Customer Insurance?

Any business that takes temporary possession of other people’s property is a bailee. If your business regularly repairs, stores, or offers repair or refurbishment to customer property, even for a very short time, Bailee’s Insurance Coverage could help protect you from the risks of damage or loss to customers’ possessions. While the loss of a single customer item may not seem of much financial consequence, imagine a fire wiping out all of your customers’ items. The financial repercussions from customer claims could be substantial and, worse yet, financially crippling.

You might think that damage or loss of customer property would be covered by your commercial property insurance policy, but that only insures what you own, not your customers’ property. The property damage coverage portion of your general liability policy also would not cover customers’ property. In fact, most general liability policies specifically exclude property belonging to others that is in your care, custody, or control—all the more reason to consider Bailee’s Customer Insurance.

Common businesses that hold property in bailment include:

• Any business offering valet service
• Auctioneers
• Clock or watch repair shops
• Computer/electronics repair stores
• Couriers
• Curtain or rug cleaners
• Dry cleaners and tailors
• Event planners
• Furniture repair or restoration
• Garages and auto shops
• Jewelers and pawn shops
• Restaurants offering coat check
• Storage facilities and warehouses
• Tool repair or servicing
• Veterinarians and pet hotels

What does Bailee’s Customer Insurance cover?

While coverage varies from insurer to insurer, a typical Bailee’s Customer Insurance policy will include protection from these dangers:

• Burglary and theft
• Water and sprinkler leaks
• Windstorm, lightning, and hail
• Collision
• Fire and explosion
• Strike, riot, and civil commotion
• Earthquake
• Vandalism
• Damage or destruction during transit by a carrier

Example:

• You own a smartphone repair store, and at any given time, your store is in possession of roughly 150 customer phones in varying stages of repair. Your store is burglarized, and all the phones are stolen. With each phone averaging $500 in value, you may be on the hook for $75,000 in customer claims. Luckily, you are protected by your Bailee’s Customer Insurance policy, which covers burglary and theft.

What are the key exclusions of Bailee’s Customer Insurance?

There are several common exclusions of Bailee’s Customer Insurance, including losses resulting from:

• Flood
• Rodents or insects
• Dishonest or illegal acts
• Voluntary parting with the covered property due to trickery, fraud, or false pretense

Example:

• You own a jewelry store and are in the process of cleaning a customer’s diamond engagement ring. Someone comes in to pick up the ring, claiming to be the customer’s husband. You give the ring to him and later find out that he was not who he claimed to be. The customer sues you for the lost ring, and your Bailee’s Customer Insurance would not cover the loss because you were tricked into giving away the ring.

What are the important provisions of Bailee’s Customer Insurance?

In addition to the core coverage for Bailee’s Customer Insurance, there are three main coverage options that are typically provided. They are:

Unlimited Bailee’s Coverage

With most insurance, the onus is on you to accurately estimate the value of the property that you take possession of, which can be quite a chore if your business is constantly receiving and parting with property, like a valet or dry cleaner. Unlimited Bailee’s Coverage insures you regardless of the property’s value, relieving you of the need to accurately estimate the value of each piece you receive. The benefit to this is that you don’t have the risk of underestimating the value of property and becoming responsible to pay the difference on a claim.

If you are confident that you can easily and accurately calculate the value of your customers’ property, you might avoid overpaying by looking for a policy where the premium is based on a percentage of the total value. Policies like this usually have a dollar cap amount, ranging from $1 million to $5 million, on the benefit they offer.

Damage in Process

This option provides coverage in cases where someone at your business damages an item in the course of repairing or servicing it.

Example:

• You own a car detailing shop, and a customer brings in their sports car for a full tinting of the windows. During the process of trimming the tint, an employee accidentally scratches the trunk of the car, damaging the paint.

Mysterious Disappearance

This insurance provides coverage in cases where a customers’ property is lost or misplaced.

Can’t you just post a sign saying “not responsible for loss or damage?”

We all know this from the coat check that has a large sign saying that no matter what happens to your coat, they aren’t responsible, or an auto repair shop that has you sign a similar agreement, waiving their liability to any damage or loss. Legally, these types of disclaimers or agreements don’t hold much water. Bailment law is quite a different thing than the law governing contracts, and in most instances, bailment law forbids bailors from contracting away their rights, making such disclaimers and agreements invalid.

How much Bailee’s Customer Coverage do you need?

The amount of coverage you need will depend on your individual business and the value of the property you will be holding. If you repair priceless antiques, you will probably need far more insurance than you would if you run a dry cleaners.

Final Word

If your business takes possession, but not ownership, of a customer’s property—even for only a few hours, like a coat check attendant—you are a bailee, and you are liable for losses or damage to your customer’s property while in your possession. Other examples of typical bailees include dry cleaners, valets, jewelers, and repair shops for everything from cars to computers. As a bailee, you have a legal and monetary responsibility to safeguard and protect your customer’s property while in your care, and if something happens to it—even if it’s not your fault—you are responsible for the expense of replacing or reimbursing the customer for it. In situations where multiple customers’ property is affected, the costs can become exponential. Your property or general liability insurance will not cover this. Only Bailee’s Customer Insurance handles the expenses incurred when your customer’s property is lost or damaged.