Because of the portable nature of customers' goods, often involving transportation by the bailee and always involving property away from the property owner's premises, insurance on bailee's customers property is eligible for inland marine insurance under the Nationwide Marine Definition (see Definition of Marine Insurance). Moreover, it is an uncontrolled class of inland marine coverage, with each insurer using its own forms and rating methods. Most of the bailee's customers forms bear a general similarity to one another but with variations in two major areas: named perils or open perils insurance; and reporting or nonreporting insurance. This discussion deals with the generic concepts customarily found in customers goods coverages; however, the bailee's customers floater from the American Association of Insurance Services (AAIS), IM 7550, is used as a reference guide to show just how an actual coverage form reads. ISO has a bailee's customers coverage form, IH 00 85. The BOP also serves in that capacity to a degree; and, of course, the commercial property form does provide coverage for the personal property of others that is in the care, custody, or control of the named insured. Note though, that both of those forms do not provide property in transit coverage or off-premises coverage to the extent of the bailee's customers floater. Finally, remember that individual forms from different insurance companies may have significant differences and should be read carefully for their particular provisions.

Topics covered:

Eligible classes

Scope of coverage

Additional coverages

Perils insured against

Exclusions

Loss settlements terms

Deductible

Reporting form coverage

Other provisions

Storage endorsement

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Eligible Classes

 A wide variety of businesses have a customers goods exposure. Individual insurers' practices vary as to the treatment of individual classes. Among the obvious businesses that will always have a customers goods exposure are laundries and dry cleaners, repair services of various kinds, and processors of various kinds that perform specific processing functions on products manufactured or purchased for resale by others.

 The property involved may be either property on which the service or processing is to be done or property such as tools, dies, models, forms, printing plates, art work, and the like used in the processing and held by the bailee but owned by the customer. Some insurers use the same form for all of these kinds of customers property, while others restrict the use to particular classes or provide several different forms with language tailored to particular classes from among the broad group. Perhaps the most common in terms of numbers of available insureds and uniformity of treatment is the laundry and dry cleaning class. Most insurers that write any commercial inland marine insurance offer bailee's customers coverage for laundries and dry cleaners.

 Scope of Coverage

 Most policies cover customers goods on the bailee's premises, including branches; in custody of the bailee's agents and stores; and in transit to or from the bailee's own locations, customers, agents, and stores. Generally, the basic bailee policy does not cover property accepted by the bailee but in the custody of other bailees (though such coverage can be added by endorsement if the insurer chooses to do so). The basic policy also does not usually cover property accepted for storage, but there are exceptions to this. For example, the AAIS form does apply to direct physical loss caused by a covered peril to property of others that the named insured stores; a limit for this coverage has to be indicated on the declarations page, the property has to be stored at a premises described on the dec page, and the coverage applies only if the named insured has issued a storage receipt. So, storage coverage can be bought by the insured, and, if such coverage is not on the policy itself, coverage can usually be extended by endorsement.

 Note that when the policy is extended to include coverage for goods in custody of other bailees—a common exposure for specialty items such as leather or furs that bailees accept as an accommodation to customers but may not actually be equipped to clean within their own shop—the coverage is not a substitute for the other bailee's own insurance. The other bailee's policy likely contains the no-benefit-to-bailee and subrogation clauses found in most customers goods contracts that leave the first insurer the right to recover against the other bailee, having paid the customer's claim.

 In addition to covering the customers goods for their actual cash value, most policies also include processing charges earned by the bailee on property lost or damaged by an insured peril but which cannot be collected because of the loss or damage to the goods. For example, the AAIS form will pay the limit for earned charges that is indicated on the dec page, or no more than $5,000 if no limit is shown. Unincurred processing expenses are deducted from the processing charges in determining the bailee's loss. When the policy is extended to include goods held for storage, earned storage charges less unincurred expenses may also be insured.

 There are some items that a bailee's policy will not cover. Examples are contraband, furs (coverage is possible through the use of an endorsement), money, and securities. The AAIS form adds that it does not cover property of others that the named insured accepts without charging for the service. As an example, if the named insured dry cleaner took his mother's dresses to the store to be cleaned for free, and a fire destroyed the dresses, the AAIS form would not cover such a loss.

 Additional Coverages

 Some bailees floaters provide the insured with additional coverages; this depends on the individual insurer's underwriting philosophy and objectives. As an example, the AAIS policy offers as additional coverages: debris removal, defense of lawsuits, emergency removal, and pollutant cleanup. These additional coverages have their own limitations—such as, amount to be paid or time limitations—but, they are offered at no extra charge to the insured and provide a valuable service to the insured.

 Perils Insured Against

 Customers goods policies are of two general types with respect to perils insured against, broad named peril contracts or open perils.

 Considerable variation exists among named peril policies as to the perils insured against. In general, however, they include at least: fire and lightning; wind and hail; explosion; smoke; strike; riot and civil commotion; vandalism; burglary and hold-up; transportation risks; and confusion of goods. Such "confusion" is the inability to identify the ownership of goods even though they are not physically damaged arising from any insured peril. Flood, earthquake, sprinkler leakage, and water damage from plumbing systems or appliances are other perils that are sometimes included; as an example, the AAIS policy allows for coverage of loss due to fire from an earthquake and fire, explosion or sprinkler leakage caused by a flood. And, note that many policies provide full theft coverage rather than only burglary and hold up.

 When open perils coverage is provided, it is necessary to look at the exclusions to find out what is not covered.

 Exclusions

 Generally, whether under named peril or open perils coverage, the following kinds of loss will be excluded: processing damage, unless caused by fire or explosion; loss resulting from misdelivery or unaccountable shortage where evidence of the probability of theft is absent (some policies, like the AAIS form, make an exception here for loss to covered property in the custody of a carrier for hire); theft of goods left on or in unattended vehicles unless the vehicle is securely locked, its windows are fully closed, and there is visible evidence of a forced entry; dishonest acts of the named insured, employees, agents, partners, officers, or directors ; war and nuclear hazards; and loss caused due to an order of any civil authority.

The open perils policy generally excludes those particular perils as well as any or all of the following: wear and tear; marring; deterioration; inherent vice; latent defect; rust; mold; wet or dry rot; contamination; pollution; voluntary parting with title to or possession of any property because of any fraud, scheme, or false pretense; and loss caused by or resulting from loss of use, business interruption, delay, or loss of market.

 Loss Settlement Terms

 In case of a loss to covered property, the value of that loss is usually based on actual cash value at the time of the loss. The insurer will pay no more than the named insured's insurable interest in any property; but, in a loss settlement, the insurer will pay the lesser of the amount determined under valuation, the cost to repair or replace with material of like kind and quality, or the limit listed on the dec page. These listed limits apply to what exposures the insured needs to have covered and those exposures that the insurer will cover. Under the AAIS policy, for example, the insured can list limits of insurance for property at the described premises, property temporarily at unscheduled premises, property in transit, and earned charges.

 The insurer reserves to itself the option of paying the value of the loss or the cost of repair. Whichever path the insurer chooses, a loss should be paid within a certain time period. This period is currently controlled in many instances by state law, but some policies will still list payment times. For example, the AAIS policy declares that the insurer will make payment for loss within 30 days after a satisfactory proof of loss is received and the amount of the loss has been established.

 Deductible

 Most bailee customers goods coverage is written subject to a deductible, usually applying on a per occurrence basis. The size of the deductible amount is negotiable and rate credit will generally be allowed for increased deductible size.

 Reporting Form Coverage

 Bailee's coverage may be written on a reporting basis with the premium based on the insured's receipts rather than the value of the goods held. The reporting period may be monthly, quarterly, or sometimes even annually. The insured generally pays an advance deposit equivalent to the anticipated values for the reporting period, and then submits payment of the premium based on the values reported times the rate with each periodic report.

 When storage coverage is provided it is usually necessary to report the storage separately. The basis for insuring the storage is the declared valuation of all goods held in storage at the end of each month. Where reporting is on other than a monthly basis, the insured generally must still maintain a record of the declared storage values at the end of each month although they may be reported on a cumulative basis. Again, the premium is computed on the values reported times the rate for storage and payment is usually made with the report.

 Other Provisions

 The customers goods policy will usually contain a number of important conditions, including: a pair or set clause; provisions relating to the insured's duties after loss; territorial limits and policy period; and, provisions common to most property policies such as concealment or fraud, recoveries, assignment of interest, subrogation, other insurance, and appraisal clauses. The AAIS policy offers examples of such clauses.

 IM 7550 declares in its pair or set clause that the value of a lost or damaged article which is part of a pair or set is based on a reasonable proportion of the value of the entire pair or set; a loss is not considered a total loss of the pair or set. The policy's concealment clause notes that the coverage is void as to the named insured and any other insured if, before, or after a loss, there is any fraud or willful concealment or misrepresentation by the named insured or any other insured. The recoveries clause dictates who will be paid and what will be paid if lost or damaged property is recovered, or a recovery payment is made by those responsible for the loss.

 Note that some variety exists in the other insurance clause. One clause that is sometimes found excludes coverage on property for which there is other insurance. The intent is for customers to look to their own insurance in cases where the loss is not in any way due to the bailee's negligence. Or the clause may provide that the bailee coverage is excess over other insurance or that it is contributory with other insurance on the property. IM 7550, for example, declares that if there is another policy covering the same loss, the insurer will pay a pro-rata share of the loss, or pay for the amount of covered loss in excess of the amount due from that other policy (whether or not the named insured can collect on that policy); the course of action is based on how that other insurance policy reads.

 Note that the AAIS form also has a clause on the restoration of limits. A loss that the insurer pays does not reduce the applicable limits. In other words, if the insured has a limit of $100,000 for on-premises coverage and suffers a fire loss totaling $25,000, the payment of the loss does not reduce the insured's coverage to $75,000 for the remainder of the policy period.

 It should be also noted that, from the standpoint of customer relations, many of these provisions should be modified in favor of a provision that the customers goods coverage is primary. Thus, it is not necessary to involve the customer's own insurance except as excess coverage over the bailee's customers goods coverage on the property.

 Storage Endorsement

 For bailees that accept customers goods (such as furs) for seasonal storage, coverage on these goods can be added to the bailee policy by use of a storage endorsement (the AAIS policy has storage coverage on the policy itself). Generally (but not always) the perils are the same as for the bailee customers floater. There will usually be some type of limitation on the coverage or a fairly low limit per article on furs or articles containing fur accepted for storage. Generally the underwriter limits acceptance to those risks where fur or fur trimmed garments are only a small percentage of the total garments accepted for storage. And, there may also be strict underwriting requirements to be met before the insurer will insure the exposure. For example, AAIS will cover fur storage but requires a certified central station premises alarm and even a vehicle alarm.

 A storage endorsement normally covers only garments for which a storage receipt has been issued and covers only the declared value of the garments. The storage receipt will contain a provision limiting the bailee's liability per garment to a specific figure unless the customer declares a higher value and pays an additional storage charge for the increased value declared.

 For risks with a storage vault, coverage may be limited to goods in the vault. A separate high limit for the vault and lower limit for goods outside the vault may apply, with a separate rate for each.

 The storage coverage is usually on a reporting form with the total declared valuation of all goods accepted for storage at the end of each month reported periodically to the insurer. The premium is based on the sum of the monthly values reported.