What Insurance is Required When Using a 3PL Warehouse?

Your goods are your business. Their safe transport from your production facilities to their subsequent warehouses and their safe storage is one of the most important considerations that you have to make as a business owner.
Insurance needed when using a 3PL

If your goods are lost or damaged while in the hands of a third party warehouse provider, you could be looking at losses in revenue of tens of thousands of dollars or more without the ability to recoup those losses.

That’s why asking the right questions and choosing the right 3PL warehouse provider is such a critical decision. Our clients often ask us questions about what kinds of insurance is required when using a 3PL warehouse provider and what kind of insurance should they include in their contracts?

This post is all about answering those important questions and giving you a deeper understanding of the warehouse industry so that you can make informed decisions.

GET FREE WAREHOUSE INSURANCE QUOTES

What Kind of Insurance is Required and What are You Covered For?

There are several types of insurance that any warehouse and transportation provider can possess. Each one has a different level of coverage and will cover your goods for different scenarios. Warehousing insurance is a type of insurance that protects businesses storing goods or inventory in a warehouse. The warehouse insurance covers the physical building and its contents, including any equipment or machinery used to store or move the goods. It also covers loss of income due to interruptions in the business caused by covered events.

We are going to cover four of the most common types of insurance that you need to be aware of when contracting a 3PL provider for warehousing and transportation services as well as what each one means for your business.

1. Warehouse Liability Insurance

Warehouse liability insurance is a type of coverage that protects your business from any legal liability resulting from damage or injury to third parties. It includes bodily injury, property damage, and other types of losses. With this type of coverage, warehouse operators protect themselves from potential claims made by customers, employees, or other third parties.

Warehouse legal liability insurance is also known as warehouseman legal liability insurance. It covers legal liability arising from the handling and storing of goods. Warehouse legal liability insurance is only liable if it’s led by negligence.

Warehouse legal liability insurance covers a range of claims that include:

  • Damage to goods due to careless handling
  • Theft of goods because of poor security measures
  • Mishandling of goods by the employees
  • Failure to deliver goods to the intended destination
  • Environmental damage due to mishandling
  • Faulty climate controls

Warehouse legal liability insurance means that the warehouse provider is responsible for the safe storage of your goods and must provide “reasonable care” to your goods while in their care. If the warehouse provider does not provide “reasonable care” and their negligence results in loss or damage of your goods, then the warehouse provider’s insurance company will cover your losses and pay your for the goods.

Under this kind of insurance policy, you are still responsible for your goods for any other kind of damage or loss of goods i.e fires, floods, windstorms, hurricanes, etc.

It’s important to note that with warehouse legal liability insurance, the insurance provider that is covering the policy will only pay your damages if “negligence” is the cause of the loss or damage.

Furthermore, if the warehouse provider is offering you a level of care that goes beyond the legal definition of “reasonable care” the insurance provider will most likely not cover damages in the event of lost or damaged goods. So, if your warehouse provider is offering added storage benefits or a higher degree of care than what their insurance policy defines as “reasonable”, you need to make sure that your contract specifies who will cover damages in the event the insurance provider declines to cover the costs.

3. Business Interruptions Insurance

Business interruptions insurance covers the warehouse in the event of a natural disaster or other business interruption and pays the warehouse their profits during the time that they were unable to conduct business.

This is a step beyond property insurance as it covers the profits associated with loss of business and not just the costs of repairing the property.

This kind of insurance will only cover the warehouse provider, not the customers that are storing their goods there.

If the warehouse that you’re storing your goods in is located in an area prone to natural disasters, you could add a provision to your contract that would require the warehouse provider to give you a portion of your losses out of their payment from the insurance provider who underwrites their business interruption insurance. However, this would be a very hard bargain and is unlikely that most (or any) 3PL providers would agree to it.

However, there is also contingent business interruption insurance which means that in the event one of your warehouses cannot operate and you lose profits during the time that they were inoperable, you would be able to file a claim with your insurance provider to cover the losses during that time.

This would be something that you would need to purchase outside of any warehouse provider you decide to do business with, but could be incredibly beneficial to you as you expand your business and increasingly rely on third party logistics providers throughout the country.

4. Transportation Insurance

Much like the warehouse legal liability insurance above, transportation insurance has varied clauses, legal definitions and limitations to when and how much you’ll get reimbursed if your goods are lost or damaged.

Basic transportation insurance specifies that the carrier is responsible for the safe transport of your goods and their insurance provider will pay your for loss or damage as long as the carrier was negligent during transport.

Again, you’re still responsible for loss or damage due to natural disasters or other circumstances outside of the control of the carrier. When you’re reviewing the contract for responsibility during transport make sure you understand the definition of negligence that the carrier is using.

Another consideration for transportation insurance is whether or not the payment will be made to you based on loss of profits, wholesale price of your goods or price per pound of your products. Depending on how payments are specified, you could be looking at a varied amount of payments.

GET FREE WAREHOUSE INSURANCE QUOTES

How Are Warehouse Inventory Losses Valued by Insurance Companies?

The value of warehouse inventory losses determination is by the replacement cost method. It calculates the cost of replacing the lost items with new ones of the same or similar kind and quality. This method considers the cost of materials, labor, and other expenses necessary to replace the lost inventory.

The replacement cost ensures the business can replace the lost items with new ones without incurring additional costs. This method also ensures that the insurance company pays the firm fairly and accurately for the losses.

It’s important to note that each insurance company may have specific policy terms and conditions. Therefore, businesses must carefully review their insurance policies and understand the terms and conditions related to warehouse inventory losses.

Other Types of Warehouse Insurance That You Need to Understand When Working With Warehouses

Here are other types of warehouse insurance coverage that you need to understand.

Commercial Property Insurance

This insurance protects a business’s physical assets, including the warehouse building and contents. This policy reimburses the property to its current market price. It covers repairing or replacing damaged property and any lost income or extra expenses incurred due to the damage.

General Liability Insurance

General liability insurance protects a business if it is legally responsible for bodily injury or property damage to third parties. The damage has to occur on the business’s premises or as a result of its operations. General liability insurance can cover the cost of legal defense and any damages awarded to the injured party.

Employee Dishonesty Insurance

This type of insurance provides coverage for losses that result from theft, fraud, or other dishonest acts committed by an employee of the business. Employee dishonesty insurance can cover losses related to the theft of inventory or money, embezzlement, forgery, and other types of fraud.

GET FREE WAREHOUSE INSURANCE QUOTES

How to Mitigate Risk When Working With a 3PL?

Let’s look at ways to mitigate risks when working with a 3PL.

  • Choose a 3PL wisely – Companies must start by researching and evaluating potential providers based on their industry experience, track record, and customer reviews. You should define specific requirements and expectations for the 3PL provider, such as the types of products and the frequency of shipments. Clearly understanding their needs, companies can select a 3PL provider best equipped to meet those needs.
  • Write specific concerns into your agreement/contract with the 3PL -You should have a solid 3PL warehouse agreement/contract to minimize inventory loss, including particular inventory management procedures, loss prevention, and liability provisions. Additionally, the contract should specify the level of liability that the 3PL provider will assume in case of inventory loss or damage.
  • Invest in your insurance policies – While the 3PL provider may have insurance coverage, more is needed to cover the total value of a company’s inventory. Companies must consider taking comprehensive insurance policies to protect the goods and ensure adequate coverage in case of any issues. It gives you peace of mind and minimizes the risk of financial loss in case of any problems.

Get FREE Warehouse Insurance Quotes

Fill out this quick form now...

Final Thoughts on Warehousing Insurance

These examples are some of the most common kinds of insurance required when using a 3PL warehouse. Based on your specific business needs or products being stored & transported, these may be insufficient for your needs. It’s always best to consult a professional or a lawyer when drafting or signing contracts that could impact your business’s bottom line.

Insurance for warehouse storage is a critical component of risk management for businesses that operate warehouses or storage facilities. Investing in it provides financial protection in the event of unexpected losses, ensuring the long-term success of your business. Companies must purchase warehouse insurance coverage to avoid suffering losses.

If you have any questions about insurance or any other aspect of 3PL warehousing or transportation, feel free to contact us.

Leave a Reply

Your email address will not be published. Required fields are marked *

What Our Customers Say About Us And Our Work

Jo-Ann Hill

I want to say thank you for your help in finding a warehouse so quickly. Your service was amazing. I received replies the same day and have selected a company that will work well for us. I definitely recommend your services.

Vee Zeniuk

I wanted to express my gratitude for your services and let you know that it was a very enjoyable experience! We have selected one of the companies and they are awesome!

Mujeeb

You are doing such a great job and this service that you provide is a life saver for people especially startups like me....We cannot spend budgets on researching as much as the big firms can...and you provide us one stop solution which will answer all our questions.

Joyce Sloss

I just wanted to let you know that I selected one of your vendors as our fulfillment house. They can do what we need and we’re looking forward to working with them. They can handle our “special projects” fulfillment, which was key to our decision in bringing them onboard. I appreciate this service. It was great for our company.

Jeffrey Schmidt

I didn’t know there was so much difference in fulfillment companies — this was my first time in need of this sort of service. After a Google search I luckily stumbled upon WarehousingAndFulfillment.com. They saved me an incredible amount of time and money. Within minutes I had a couple of emails from good companies that fit my situation. I am very appreciative of their help.

Eric Kolb

Warehousing and Fulfillment was the perfect matchmaker in finding us a fulfillment partner. They provided several great options, all of whom were very responsive and willing to take the time to talk through our needs. We ended up going with W&F’s top match and we couldn’t be happier. I highly recommend W&F, particularly to anyone whose business relies on a strong fulfillment partner.

Paul Sauer

We were having multiple issues with our 3PL fulfilling warranty replacement parts. Our company needed to make a change and make one fast. I reached out to WarehousingAndFulfillment.com to facilitate my search for a reputable, service oriented 3PL that can handle the demands of a highly seasonal business to pick, pack and ship parts quickly. I received several qualified 3PL leads that matched what we were looking for. After reviewing and speaking with many one stood out from the rest, and we found a great partner. We could not recommend WarehousingAndFulfillment.com enough.

Read More

Denis Mills

We found the perfect third-party fulfillment vendor through insightQuote. We never would have found them on our own. We can’t thank you enough and our customers thank you too.

Sarah De Munck

Thanks for all of your help. This was a huge undertaking for us and your guidance was extremely helpful!

Gwynne MacHattie

Thank you so much for your excellent service. We have chosen one to go forward with. This has saved us a great deal of time.

Ash Cook

They really listened to our requirements and then matched us with great vendors that could meet our specific challenges.

Corky Bless

I just wanted to say thank you so much for setting me up with these vendors. I have found pricing better than I ever expected to find.

Brian Chui

Legit, this was such a good experience ... I was shocked how fast the vendors contacted me and got the ball rolling. This was such a pleasant experience

Donald Willick

What an awesome service. A problem I fought with daily for over 3 weeks, solved in less than 24 hours.