Hello, I'm Lillian Coulson, and I'm pleased to introduce today's webinar titled Demystifying Warehouse Legal Liability, Understanding the Differences Between Warehouse Legal Liability, Bailey Insurance, and Personal Property of Others. Please be aware of the IMUA statement. It's my pleasure to introduce today's presenters. Sharon Primerano has served as an underwriting officer in the Hartford marine business for the past five years. Prior to joining the Hartford, Sharon held marine leadership roles at Allianz, One Beacon, and Thub. She is an IMUA board member, past chair of IMUA's marketing and communications committee, and Sharon has also contributed as a panelist in an IMUA Gen X, Gen Y workshop, and she's a past presenter for both IMUA and our sister association, AIMU. Jessica Frankovich is vice president of Inland Marine and has been underwriting for 15 years, with the last 12 focusing on Inland Marine at Seneca Insurance Company. She's held various underwriting and management roles and has been at Seneca for the past four and a half years, the last two of which she's been responsible for running Seneca's Inland Marine Department. She has a BBA from the University of Wisconsin, with a double major in marketing and risk management and insurance, and a master's of bachelor's arts in finance from DePaul University. She also has completed her CPCU, AMIM, ARM, and ARE. Finally, Jessica has been an active member of the IMUA since 2005 and started by serving on the Midwest Advisory Committee, and she's also currently an active member of IMUA's board of directors. We're very fortunate to have both of them here today, and the floor is all yours, Jess and Sharon. Well, good morning. Sharon and I would like to thank you for taking the time to join us for this webinar on warehouse legal, baileys, and personal property of others. Warehouse legal continues to be a misunderstood class of business, so we felt that this topic was a very important one for our industry. As underwriters, we often receive submissions where they insure it as a warehouse owner that believes they need a warehouse legal policy simply because it contains the word warehouse. If your company's forms require a warehouse receipt in order for coverage to apply, obtaining it can pose a challenge. We often receive baileys or personal property of others submissions masquerading as warehouse legal and vice versa. And then sometimes we are asked for very confusing things, such as warehouse legal with full replacement costs. Even if, as the underwriter, you fully understand these coverages and the differences, they can be challenging to explain to your producers and ultimately to the insured. So for Module 1, our goal at the end of this presentation is to put you in a position where you can easily explain the difference between warehouse legal, baileys, and personal property of others. As we go through this presentation, keep in mind that if you cannot determine the valuation of the goods or the actual exposure when you are underwriting the account, it will be even more difficult to do so in the event of a loss. The next few slides will run through at a very high level the basics between when warehouse, baileys, and personal property of others is needed, and then we'll be getting into the details. All right, so here are four things that normally come into play when warehouse legal is required. First, the insured has property of others in their care, custody, and control. Second, the property is being stored for a charge. Note that this is important because if the property is being stored for free, there is no assumption of legal liability and warehouse legal would not apply. Third, a warehouse receipt has been issued. Now this is the item that is evolving. You will see later that the newer ISO forms do not require that property be held under a warehouse receipt, but historically a warehouse receipt was required, and many of the available coverage forms still require one. Fourth, the insured is assuming the minimum responsibility required by law for damage to their customer's goods. So what does this mean? It means that in the event of a loss, our insured is not necessarily going to make their customer whole. They are simply going to satisfy their legal obligation to them. So what if that doesn't work and creates ill will or loss of a customer? In those instances, warehouse legal is most likely not the correct coverage form for that risk. Okay, so here are four items required for Baylease to apply. First, the insured has property of others in their care, custody, and control. Second, the property is being processed or serviced with no more than incidental storage. So let's talk about this for a minute. Most Baylease policies are designed to pick up damage to goods that are being worked on in some fashion by the insured. If the property is simply being held or stored, most Baylease forms will not provide coverage. As always, make sure you check your own coverage forms. Third, the Baylease has assumed liability which can either be written or oral. There is no need for a true contract. Obviously, when things are in writing, there are clear expectations and outcomes in the event of a loss. But a verbal agreement is sufficient to create a Baylease-Baylor relationship. And finally, the concept of goodwill applies to Baylease coverages where the insured is assuming responsibility for damage to the property even if they are not legally liable. And if you're wondering why an insured wants to pay more to their customer than they are legally required, it is generally so that they don't lose that customer. Okay, and then when is personal property of others needed? A common theme for all three of these coverages is that the insured has property of others in their care, custody, and control. This seems like common sense, but don't lose sight of this requirement as you cannot have warehouse legal or Baylease coverage on your own goods. If broad property coverage is required, such as an all risks or a special form, or possibly more favorable valuation, such as replacement cost or stated value, personal property of others may be the way to go. And finally, this coverage typically applies to goods and storage only. So remember how Baylease generally requires that the goods are being processed or serviced? That same requirement does not apply here. So with this being said, I'm going to turn this over to Sharon, who's going to get into some definitions. Good morning, everyone. This is Sharon Pomerano. Hope everyone is doing well this morning. Welcome to our webinar. So happy to have you. Looks like we have a great turnout. I'm seeing so many names that I've known for so many years, and I'm very glad that you're all muted because I don't want any heckling. So everyone enjoy our webinar. Jessica and I have had a wonderful time putting this together, and we hope you learned something. And we feel like you'll have some good lead behind with this, too. So for this module, we thought we would start out with some definitions, foundational to get you all grounded in the topic. We believe that these are definitions that'll be really helpful when underwriting all the various types of goods of others exposures. Okay, so we're going to start with the very basic terms of bailment, bailee, and bailor. Bailment is the delivery of property into the custody of another party. The two parties in a bailment are the bailee and the bailor. The bailor is the person that takes custody of the property. The bailee is the person who takes custody of the property, and the bailor entrusts the property to the bailee. It's important to understand that there are three different types of bailment. You have bailment for the sole benefit of the bailee or for the sole benefit of the bailor. When it's for the sole benefit of the bailor, that's when the bailor entrusts a piece of property to the bailee for safekeeping, but there's no compensation to the bailee. And when it's the reverse, sole benefit of the bailee, that's when the bailor loans property to the bailee for the bailee's benefit. These terms are going to be important as we go through the presentation. Now the type of bailment that we are most familiar with as underwriters is when the bailment is for the mutual benefit of the bailor and the bailee. The bailor entrusts property to the bailee, and then the bailee receives compensation in return. An example is when goods are entrusted for storage or for processing. The elements of a bailment are delivery, acceptance, and consideration. Property must be delivered to a bailee, and the bailee has to accept the property. A party cannot unknowingly become a bailee. And then there also has to be consideration. Unlike a typical contract where both parties have to receive something of value, in a bailment only one party needs to receive something of value. And it's important to note that courts generally don't permit a bailee to exculpate themselves from complete liability for loss. We thought it would be good to share a couple of related legal terms because Jessica and I feel like these come up pretty regularly when you're dealing with warehouse legal, bailees, and other property of others type exposures. So bad faith is acting with the intent of deceiving or misleading another for the purpose of gaining some advantage. Consideration, like we've talked about before, being one of the elements of a bailment that is either recompense or payment, typically money. And then negligence, I know it's a term that we all hear and use a lot, but I think it's important to ground yourself in the definition, which is failure to exercise a degree of care that would be taken by another reasonable person in the same circumstances. That is how negligence is defined. And then lastly, to close out the definition section, we thought it would be helpful for you to have on hand the section of the Uniform Commercial Code that speaks specifically to warehouse liability. A warehouse is liable for damages caused by failure to exercise reasonable care. So you'll hear that term, reasonable care, frequently. A warehouse is not liable for damages that could have been avoided by the exercise of that care. Now we're going to move on to the next module. Here we're going to talk about some of the key differences in the rights and responsibilities of bailees. The rights and responsibilities of a bailee vary according to the type of bailment. We discussed already that the three types of bailment are for the sole benefit of the bailor, for the sole benefit of the bailee, or for the mutual benefit of the bailee and the bailiff. As Inland Marine underwriters, we are familiar with the CARMAC Amendment. CARMAC spells out the rights, duties, and liabilities of shippers and carriers when it comes to cargo loss. So we're all familiar with that when we're underwriting our motor truck cargo policies. Notwithstanding a specific law like CARMAC, which speaks to a specific type of bailee, the default level of care for a bailee when the bailment is for mutual benefit is ordinary care. So this means the bailee must take reasonable care of the property and will be liable for damages caused by his failure to take that reasonable care. Now like we said, typically what we're going to see is mutual benefit, but I thought you should all understand the responsibilities when it is sole benefit of bailor or sole benefit of bailee. So when it is for the sole benefit of the bailor, the bailee should only be held liable for gross negligence or bad faith. And then the reverse is true when it's for the sole benefit of the bailee. The bailee has a duty of taking extraordinary care when it's for that bailee's sole benefit. Now we'll talk a little bit about types of liability, what legal liability is. Legal liability is the concept of being legally or financially responsible for something, plain and simple. It can arise from civil actions or torts or from contracts. It's important to remember, and Jeff has already mentioned it, I believe, that liability can be assumed by written or oral contract. And another thing that I hadn't really thought of too much was the idea of representations on a website. So I would say it's very important for you as underwriters when you get these types of risk in to really take a long, hard look at the insurance website and see exactly what are they representing. And this could get into the type of care that they're saying they would be providing. This is one of the many ways that you could serve as that subject matter expert to your agent and help them underwrite the risk. Assumed liability is another topic that we wanted to make sure everyone is very clear on. So preparing for this presentation, Jessica and I reviewed some ISO forms and some AARS forms. And we found that both AARS and ISO address assumed liability. So you'll see for AARS, we do not cover property for which you have assumed liability beyond the liability imposed upon you by law. And you'll see that same similar wording in the ISO form. So thinking back to our definition of what is required of a bailee, specifically ordinary care, if a warehouseman is assuming liability beyond ordinary care, then a warehouseman's legal policy is likely not the appropriate choice for that insured. All righty. So now just a few summary points. I believe we all know that we need to understand the contracts in play when underwriting a property of others risk. What we're hoping today is after this session that you'll see even more how important that is and be able to explain that to your agents so they can assist you in getting all those contracts that you need. You may be requested to provide a warehouseman's legal quote, but for any number of reasons, a property of others or a bailee's policy may be more appropriate. You can learn this by seeing the contracts that you're insured is using. The contract could require that you insure the goods as property of others, and this contractual liability becomes legal liability by virtue of the contract. The contract can also bring extraordinary care into play, in which case warehouse legal is definitely not appropriate. Always remember that warehouse legal is our most limited way to cover property of others. And then lastly, every warehouseman may be a bailee, but not every bailee is a warehouseman. For bailees that aren't warehousemen, a warehouse legal policy is probably not appropriate. And now we're going to take a break and have our first poll. So we're asking, what is the most common type of bailment? We see the answers coming in. Okay, Eileen, I think we're ready to broadcast the results. Okay, so I see that 76% of you selected mutual benefit. That is the correct answer. That is the most common type of bailment. All righty, thank you, Eileen, for running the polls for us, and now I'll switch it back over to Jessica to talk about valuation. Thanks, Sheriff. Okay, so before we really get into the valuation, I want to take a step back and talk about first-party versus third-party coverages. The majority of inland marine coverages are first-party, where the policyholder is protected from damages suffered to their property, and the policyholder themselves is the claimant, meaning that they are the one dealing with the insurance company, and they are the one who is going to be made whole in the event of a covered loss. But then there are third-party coverages. Third-party protects the policyholder from the liability for damages or losses caused by the policyholder to someone else's property. So that someone else here is going to be the one who becomes the claimant and deals directly with the insurance company. All right, now that we've differentiated, now that we've differentiated between first- and third-party coverages, let's discuss how warehouse legal is a third-party coverage and Bailey's and personal property of others are first-party coverages. When there's a warehouse legal claim, it is our insurance customer who should be filing the claim and dealing with the insurance company. This can create some challenges and confusion, so it is important that your insured understands up front how this will work. As a reminder, in a warehouse legal claim, the insurer will look to protect the insured from their liability to their customer, but will not necessarily make the customer whole. With Bailey's and personal property of others coverages, even though the loss is to someone else's goods, it is the insured who will be filing the claim and dealing with the insurance company, and the insured will be reimbursed for the value of the lost or damaged items as defined in the insurance policy. Okay, so now let's dive into valuation on warehouse legal. We're going to talk about valuation in both the AAIS and ISO forms, but bear in mind that your own coverage form may have both some similarities and differences, so be sure to review your own form. With AAIS, the valuation is a lesser of actual cash value or the cost to repair, replace, or rebuild with like time and quality, but not more than the limit in the policy. And then the limit will not exceed the amount of liability that is stated in the warehouse receipt. So the newest edition date of the ISO form from January of this year has two valuation clauses. One for property held under a warehouse receipt, and another for property not held under a warehouse receipt. First, for property held under a warehouse receipt, the valuation is the amount the insured is legally liable for under the receipt, but not to exceed the lesser of the replacement cost of the property or the applicable limit of insurance. And then for property not held under a warehouse receipt, the valuation is the lesser of actual cash value, the cost to restore, or the cost to replace. So really the takeaway here is that under the newest ISO form, if there is a warehouse receipt, replacement cost can be an option, but if not, actual cash value is the default. So knowing your coverage form is an overarching theme of our time together. Although reading forms may not be the most appealing part of your job, it is extremely important. At a minimum, we would encourage you to go through your forms and look at the specific items Sharon and I are pointing out during this presentation. The valuation differs not only by form, but by form version. As an example, I just talked about how the newest edition date of ISO made significant changes to the warehouse legal form, but it's such a recent edition that even if your company is using ISO forms, you may not be on this edition yet. And note that AAIS forms do require a warehouse receipt for coverage to apply, as do some of the older edition dates of proprietary ISO forms. So make sure you're checking out your own warehouse legal form to see if a warehouse receipt is a condition of coverage. All right, so let's take a quick minute and read this slide. If there is no limited liability in the warehouse receipt, the measure of damages the insured is liable for will be based on the actual cash value of the goods subject to the valuation provisions and ultimately the limit of the policy. I mean, it's a lot of words, but what does this actually mean? So this entire time we've been talking about how important it is to obtain the warehouse receipt and that the receipt has the limit of liability in it. But let's say you get the receipt and there's no limit of liability. Either it is silent or omitted, or maybe it's just not applicable to one particular customer. Then as an underwriter, you need to assume the insured will be liable for the full valuation of the goods subject to how your policy addresses valuation. There is no limited liability in the situation. Now this may lead you to wonder if there is no limited liability on the warehouse receipt, do I still need the receipt? Well the simple answer is yes. It is a definite yes if the policy requires the receipt for coverage to apply. And then in the event of a claim, a receipt will be requested, so it's best to have one from the beginning. But please remember that just because there's no limit of liability in the receipt, that does not mean that your insured is responsible for more than they would be legally liable for. Legal liability exists. It is the limit of liability in the receipt that determines the dollar amount of their legal liability. Absent this, your insured is most likely legally liable for full actual cash value. Okay, so moving on to Bailey's, the typical valuation is what we see in the majority of our other Inland Marine coverage forms. Variations on the left are of actual cash value, cost to repair, replace, or rebuild, and then ultimately the limit. And remember, if the coverage form itself is silent on valuation, you will default to the valuation provision and the commercial Inland Marine conditions attached to your policy. Okay, so personal property of others is really interesting because there are various potential options for insuring something as PPO. You can use a standard property form, although some of those forms require that you have something other than just property of others for coverage to apply. You could use a MOP or a COP, which are generally more readily accessible to Inland Departments. And you also have the miscellaneous property floater or miscellaneous articles floater, which is somewhat of a catch-all, but the standard wording in those allows for property of others and your care, custody, and control. Depending on the form you are using for this, your valuation options range from actual cash value to replacement costs, stated amount, agreed value, and almost all of these can be offered with or without coinsurance. Assessing coverage as personal property of others can give you the broadest valuation options and ability to tailor the coverage. It's your job as an underwriter to decide if that's a good thing to do. Okay, so with valuation, I mean, we've talked about a lot right now. We've talked about the valuation, limits, limit of liability, exposure. So I thought we'd try to take one example and tie all those different thoughts together. Let's say that you're insured as a warehouseman and they need a million-dollar limit for light bulbs that they store. You requested a warehouse receipt, but your producer is asking you for an indication subject too. So now what do you do? First, you need to determine what the million dollars is based on. Is the million dollars a limit or is it a value? What I mean by this is do they have a million dollars of light bulbs in the warehouse or do they simply need to provide a million dollars of coverage and maybe they actually have five million of light bulbs or 250,000 of light bulbs? And then is that million dollars based on actual cash value, replacement costs, selling price or some other type of valuation like cost plus 20%? And regardless of what the million dollars is based on, how is your policy going to respond if there is a claim? If the million dollars of light bulbs is selling price, but you're only providing an actual cash value coverage, how is that going to work? And in that instance, do they actually need a million-dollar limit? And now we have to think about the limit of liability. But without the receipt, you have no idea what, if any, the limit of liability is. If you're quoting warehouse legal subject to a warehouse receipt, what are you actually quoting and how do you know what the exposure is? And then what if you never get the receipt? What if a receipt just simply doesn't exist? Or what if the receipt's a bill of lading, which some policy forms exclude? So, I mean, these are all great questions, but if you email all of these to your producer, they may honestly want to hit the delete button. So think about asking these questions in a different way. In the event of a claim, what does your insured expect their customer to be reimbursed? Can you explain to me what this is based on? And do they have anything in writing? Okay, we're going to move on to the next module where we're going to talk about a warehouse receipt itself. Okay, I think most of us have seen this, but this is a wording from the standard warehouse receipt. Back in the day, it was often on triplicate or carbon paper. The wording on this slide is a typical wording from what was usually Section 9, limitation of liability. By now, the underwriters knew that regardless of all of this wording, 9 times out of 10, the limit of liability would come down to 50 cents a pound. So we've spoken a lot through these modules about the warehouse receipt, but I do want to go back to the Uniform Commercial Code for a minute. I'm not going to read this slide to you, but note that these are the nine items that should be contained in the warehouse receipt according to the UCC. So why is the warehouse receipt so important? As we've said, historically, if there was no receipt, there was no warehouse legal liability exposure and there was no coverage. Under the coverage section of the AEIS form, it states that we cover your legal liability for loss to covered property that you become legally obligated to pay as a warehouse operator under a warehouse receipt issued by you. And then this is also reinforced under the property not covered section where it states that we do not cover property for which no warehouse receipt has been issued. You guys will notice there's a little polling icon at the top. So here's a hint. We're not going to do that poll now. We're going to do it at the end. Okay. So then the ISO forms are a little different from the AEIS forms, and we covered this in earlier slides, but in the newest ISO form, the valuation options differ depending on if there is a receipt or not. Bottom line, the receipt coupled with your coverage form will determine the exposure, which should determine your pricing, but most importantly, will determine how a claim is settled. As the underwriter, if you cannot get a copy of a receipt or figure out how the limit of liability would apply in the event of a loss, it's not going to become clearer when a loss does happen. On the other hand, you may be in a situation where you are assuming there is no receipt and you know that your coverage form would respond appropriately. Just ensure that you know from the beginning how this would work. Don't hope and guess. Okay. So let's go back to that standard warehouse receipt we started this module with. As I mentioned, the majority of the time, the limit of liability was 50 cents per pound, but there are also times the wording was different and it would be some multiple of the monthly storage rate or an amount per pallet or per item, per box, per roll, per carton, et cetera. In those instances, as long as you knew the average and max pounds or the monthly storage rate or the number of pallets or whatnot, determining the limitation of liability was fairly simple. All right. So we're going to run through an example of determining the limitation of liability under the standard receipt wording. So get ready to use your polling buttons. You have a warehouse that stores rolls of paper and the receipt limits their liability to 50 cents a pound. On average, they have 500,000 pounds of rolled paper and the max is 600,000. The average value of the paper in hand is a million and the max value is 1.2 million. The policy limit is half a million, which is a contractual requirement. And Eileen is going to move the poll over. So assuming that they had a total loss to 600,000 pounds of paper, what is the amount the insured would be legally liable for? Thank you. Okay, so it looks like the majority of you came up with 300,000, which is the correct answer. And the reason that's correct is they have 600,000 pounds of paper times 50 cents a pound, which is 300,000. We're going to move on and we're going to do one more example. Okay, so you have a warehouse man that stores steel pipes for one customer. Their warehouse receipt limits their liability to 10 times the monthly storage rate. The monthly storage rate is 125,000. The average value of pipe on hand is 2.5 million. And the policy limit is 1 million. In the event of a covered total loss, what is the maximum the insurer would pay? And Eileen's going to move that poll over for you guys. Okay, so it looks like almost all of you got the million dollars. And that is a correct answer. It is a little bit of a trick question because in this situation, you start out by taking 10 times the monthly storage rate, which would get you to 1.25 million, but that is greater than the policy limit of a million. So good job, you guys. All right, the warehouse receipt has evolved from the standard wording, and it continues to do so. On one extreme, some receipts are actual contracts that are silent on the limit of liability. And on the other hand, some receipts attempt to completely negate the warehouseman's liability. But be cautious of the warehouseman that is saying they have no liability, yet is willing to pay a premium for warehouse legal coverage. There are various items in the UCC that need to be complied with for a warehouseman to remove all liability, and it is rare for this to actually happen. So with this being said, I'm going to turn this back over to Sharon so that she can go over the coverage forms. Thank you, Jessica. So we've hit on a number of forms items already throughout the presentation. We're just going to hit on a few more items in these next few slides. We thought it would be helpful to really dig into the forms just a little bit. Like I said before, we reviewed AAIS and ISO forms. We hit on some of the valuation components, and there will be a couple of refreshers in these next few slides. And also, we thought these would be good leave-behinds. So first, let's look at a few key clauses in the AAIS Warehouse Legal Liability form. So you'll see this is 2004, and we did confirm that this is the most current AAIS Warehouse Legal form, and as we've hit home a few times, a warehouse receipt is required for coverage to apply in the AAIS form, and the warehouse receipt is specifically defined. So here is the definition of warehouse receipt. So it can't just be any warehouse receipt. It has to be issued by you to your customer, so the insured to his or her customer, and it needs to include a description of the property, weight or number of units being stored, and the limited liability assumed by you. So in Jessica's example, that 50 cents per pound or that 10 times the monthly storage rate, something like that needs to be shown on that receipt. We also looked at the ISO, Warehouse Operator's Legal Liability forms, so we looked at the 2013 form that you see here, and also we looked at the recently updated 2018 form. You'll see that the ISO form does not require a warehouse receipt. It does, however, exclude property for which the warehouseman has assumed liability that exceeds that required by law. You'll see that here in the property not covered section. For the 2018 form, these initial clauses are similar. One change they did make is previously it only covered property at the warehouse described in the declarations. That has been expanded to include property in the open, in a vehicle, or within 100 feet of the described premises. ISO also made a few changes to the property not covered section. You'll see you still have 3B, property for which you have assumed liability in excess of liability imposed by law is still shown as property not covered, but ISO did remove some exclusions for manufactured tobacco, alcoholic beverages, goods requiring refrigeration. They added property stored under a storage space lease agreement. So that's that 3H you see there, that's in addition to the ISO form. If an insured is only renting space under a lease agreement, that is not operating as a warehouseman, so would not be the subject of warehouse legal liability. Now we'll look at a few Baileys clauses. So this is the AAIS Bailey customer's floater. So you'll see that the AAIS form really only works for dry cleaners and laundries, but as you'll see here, we only cover property for processing that consist of garments, clothing, rugs, drapes, and similar articles. Another important point on the Baileys forms, and this is true for both AAIS and ISO, while you can cover storage under these Baileys forms, the intent is absolutely that that be incidental. It is not intended to be a policy covering goods that are stored only. The thinking is that there is some processing going on. Now looking at the ISO form, you'll see how clearly we have here covered property means personal property of others that is in your care, custody, and control. And there's also the provision for storage, but again, it's intended to be incidental. Now let's take a look at a standard property form. So this is ISO's building and personal property coverage form. All right, so you'll see here the standard property form includes coverage for personal property of others that is in your care, custody, or control and located in a building or structure described in the declarations. And there's also the ability within this ISO building and personal property form to extend replacement cost to personal property of others. We know that that's something that gets requested on a pretty regular basis these days, so you see that it is incorporated into the ISO commercial property form. All righty, now for the last way we can look at covering property of others, so we've talked about warehouse legal, we've talked about baileys, we've talked about a standard property form. This, what we're displaying now, is the ISO miscellaneous articles coverage form. So many of you may have your own proprietary miscellaneous property forms that could be another way that you might cover property of others. For the purposes of ISO and AIS, ISO has this miscellaneous articles coverage form and you'll see that right into the basic coverage grant is included property you own or is in your care, custody, or control. It is important to note that this particular coverage form includes a coinsurance clause and there is no separate valuation included in this form, so your standard commercial inland marine conditions valuation would apply. All righty, so now we're going to have a few more interactive items in our presentation. All righty, ready for a few more polls. Let me read the question. If your insured is storing property of others and is required to provide replacement cost coverage for the property of others, what is the most appropriate coverage form? We'll give it a couple, maybe 30 more seconds. Okay Eileen is going to broadcast the results for us. Okay so we'll see 66% of you selected the standard property form, 19% of you selected the miscellaneous property floater. This is one where we actually had two right answers, so we believe you could use either the standard property form or a miscellaneous property floater in this instance, so good job. Okay so we're going to go on to our next poll, with this one the question is under which coverage form is a warehouse receipt required as a trigger of coverage? Okay, I'll have Eileen broadcast the results. Okay, so about 80% of you got the AIS Warehouse Legal Form, and that is the correct answer. As we talked about for the ISO form, the newest version of the ISO form, which is the new version of the ISO form, the newest form has two valuation provisions. So one valuation provision applies if there is a warehouse receipt, and then the other applies if there is not a warehouse receipt. All righty, next poll. So this is our made-up case study here. So we have ABC Logistics, and they're storing consumer goods for a major retailer. The retailer's contract requires that ABC ensure the goods for the full replacement cost of the goods. The retailer's contract also holds ABC responsible for extraordinary duty of care. What coverage form is appropriate? So our choices are Warehouse Legal, a Standard Property Form, Baileys, or a General Liability Form. Okay, we can broadcast our results now. So this one was a little more mixed. Half of you think the standard property form, and the other 25% each, warehouse legal and bay lease. We believe a standard property form would be the best way to go with this one, since it seems that the contract requires ABC Logistics to essentially treat these goods as if they are their own. One thing Jessica did mention before is, if you're doing property of others on a standard property form, you're typically going to need to cover something else as well, not just the property of others. So this could be an extension of ABC's property coverage. Okay, so one more case study. Eileen, I can't get this. Thank you. Okay, so IMUA Warehousing stores meat for a wholesale distributor supplying local restaurants. They issue a warehouse receipt assuming legal liability only, but there is no limit of liability contained within the receipt. Which coverage form is appropriate? I will give it just a few more seconds. Alright, let's broadcast. Okay, so the majority of you did say warehouse legal. And overall, that is the correct answer. As we've talked about, as long as there is generally a warehouse receipt, the warehouse receipt does not need to contain the limited liability. The thing that I just want you to be cautious of is under the AAIS forms, they do require that the receipt lists out the limited liability assumed by you. So that could be open to interpretation. You just need to be cognizant of how your own company would want to handle that. So as Jessica said in the beginning of our presentation, our goal today is to give you guys some material to help you work with your agents. Because we know it's a difficult class to underwrite, warehouse legal, Baylees, property of others. There's a lot of confusion. And the more knowledge you have, the better off you are. And the more equipped you are to help your agents. We all know that as Inland Marine underwriters, we need to serve as the subject matter experts for our agents on our classes of business. So we wanted to give you guys various information, some leave behinds that can help you as you look through these risks. Because the other thing is everyone seems to be different in some way. So in these last couple of slides, we're sharing a few questions to help you get that conversation started. So the first one, very simple, is there a warehouse receipt? Is the warehouse assuming minimum liability or greater liability? And then one that Jessica hit home pretty soundly earlier is, what is their expectation at the time of a loss? I think asking this one question alone would get you at a lot of the issues and help you out so much, especially at the time of a claim. So do they expect to make their customer whole? Or are they looking to satisfy minimum legal obligation? A warehouseman certainly may be motivated to claim negligence in order to save a customer. Those types of questions for you and your agent could be very helpful in really understanding your risk and the type of coverage you need to provide. A few other things you might want to consider discussing with your agent is, how does the insured expect the claim to be handled? And this is really important because if you remember from earlier in the presentation, on a warehouse legal claim, it's our insurance customer who's the claimant. So they're the ones that should be dealing with your claims department. And this can pose a challenge for your warehouseman. There's what our policy would require that they be paid, which may be less than the warehouseman would be willing to pay them in order to save that customer. So, I mean, that's definitely something that can become a huge sticking point. I would also want to compare the limit requested to the limitations. We ran through that in an earlier example. On this class of business, a lot of times it's difficult to tell when it comes in, are they looking for values or are they looking for limits? So walking through that scenario and then how your coverage form would apply relative to their expectations is extremely important. With that being said, I think that will conclude our presentation. Thank you, Jessica and Sharon, for a really insightful presentation with lots of excellent polling questions. So to ask a question, you'll just type your question into the Q&A pod that we're putting up right now. And then you'll click Submit. And we'll just wait a few moments for questions to come in. Okay, we have some questions now. So the first one is someone asked if we'll be sending out a copy of the presentation. You should have received a PDF of the slide presentation prior to the webinar. And if you need another copy of that, I can, if you just send an email to Lillian Colson, at lcolson, L-C-O-L-S-O-N, at imua.org. And I'll send you another copy. Okay, so one of the questions was to repeat the takeaway in regards to the valuation on the warehouse legal form for the 2018 ISO form, the newest edition date. The takeaway is basically that if there is a warehouse receipt, your valuation can be up to replacement costs. And if there is not a receipt, then actual cash value is the default for that. Obviously, at the end of the day, it's going to default to what it says in the receipt. But the valuation itself listed under the coverage form for the section with a warehouse receipt applying is that the valuation is the amount the insured is legally liable for under the receipt, but not to exceed the last job replacement cost. So I'm not sure about you, Jessica, but the question, how would you cover a client that is leasing cold storage warehouse space and does all of their own handling? Is there more there, Eileen? The insured is only responsible for maintaining the cold storage freezers. So it doesn't sound like they have goods of others in their care, custody, and control. So if they don't have any property of others in their care, custody, and control, I think it would just fall under your standard property coverage. Yep. Adding the insured's customer as an additional insured void coverage since it's a legal liability policy. So we're talking about on warehouse legal. So this is one, you know, agents and brokers do try to do this. They try to do it on motor truck cargo too. That the customer is not the entity that's going to be held legally liable. So warehouse legal, motor truck cargo, that coverage is for the motor carrier or the warehouseman who will be held legally liable for the goods of others in their care, custody, and control. And it just goes back to you can't be legally liable to yourself. Right. So you should not be adding them as an additional insured. I would say if a customer is looking for something like that, you are probably talking about someone that really wants you to cover their goods as property of others. Just to answer the question again about the presentation, if you send an email to Lillian Colson, and my email address is lcolson, that's L-C-O-L-S-O-N, at imua.org, I'll send you the presentation. Or if you have any IMUA contact information that you received a login, it may have been from Allie, if you just send an email back to her asking for the presentation, we'll send it to you again. So I'll take the Hartford Marine question. Goods stored in a warehouse are generally new or newish. Is there any reason to typically be worried about ACV or replacement cost? So I'm not sure what we mean by worried about, but I would say what I would want to know is what is my warehouseman responsible for? So what does the receipt say? What does the contract say? And that would guide me in terms of analyzing valuation. I would agree, though, if the goods are new, ACV is going to be essentially replacement cost. So if an insured warehouse assumes greater liability for some or all the property that is stored, and is completely excluded for that property, are only the incremental causes of loss assumed above the reasonable care standard? So that's a really good question. And honestly, and I know that this is not our default answer, and I apologize, it does come down to your coverage form. But really, coverage is just for what they would be responsible for as a warehouseman. I think we could take that one back to a claims person, too, Eileen, maybe somebody on one of the claims committee, and get some thoughts on that, too. One of the things, too, on that one is they, at that point, they're probably going to be looking for other insurance coverage. So did that customer have other insurance on their goods? When quoting property of others under the property form, is there a concern with the exclusion of property used for a fee under most of the property forms? Definitely a concern to fear. And we'll come back to you on the most appropriate way to deal with that. It is common to do. So I believe there's probably a common solution. Okay. So regarding the third-party coverages of bay lease form versus property of others on a property form, please briefly review circumstances for which each is the most appropriate choice. So on this one, as a reminder, the bay lease form generally is requiring that that property be worked on or serviced, whereas with the property of others form, that property can simply be stored with no work occurring to it. And that's really the big differentiator for it. Obviously, the other thing is the valuation. The bay lease generally defaults to the lesser of the actual cash value, the cost to repair, the cost to replace, whereas the property of others, depending on how you're providing coverage for it, there are different valuation options that can be broader. Okay. So the next question is, are fulfillment centers subject to the same legal liabilities as warehousemen if they are not providing a warehouse receipt and their contract requires the customers to ensure their own goods while at the fulfillment center? If they're not providing a warehouse receipt, I would think they would have some sort of contract or agreement with their customer that would lay out what they are responsible for. I do think, though, that this brings up a really good point because a lot of times on the larger warehouses we're seeing, which could be fulfillment centers, they, instead of issuing a standard contract, especially if they're dealing with larger companies, they will have individual contracts per customer. So if you are in a situation like that and you know that they're storing for multiple customers, and especially the larger customers that we know have a lot of money, such as an Amazon or whatnot, and with a lot of money comes a lot of very good attorneys, it is really important that you're getting copies of all of their contracts. Hi, Rob Pierce. Nice to see your name out there. Do you often see limits requested that are lower than values stored? My opinion is yes, you do, and really what you see are limits requested when there is no idea of what the values stored are. That is a common issue with underwriting these coverages, especially straight warehouse legal. Yeah, unfortunately a lot of times in these three coverages, the terms limits and values are used interchangeably when really they are very different. Okay, and then could an insurer whose location is within a high hazard flood zone be held legally liable in a flood event if their customer was not made aware? You know, so that's a really tricky question, and in a claim scenario, I think overall we've seen it play out both ways. Certainly the insured in a flood zone would need to be taking every precaution possible, and then you could argue that their choice to locate their warehouse in a flood zone would make them negligent, but then we've also seen FEMA remapping so many areas lately that you could have an insured who maybe they cared so much about their insurance when they went to buy their warehouse 20 years ago, they were so certain it was not in a flood zone, and then all of a sudden FEMA remaps and they are in a flood zone. A lot of times I think it comes down to exactly how their contract spells it out and what actions they took to mitigate the loss. Historically, warehouse legal has not provided flood coverage. It was seen as an act of God, but as we've seen all these changing weather patterns and we've obviously become a much more litigious society, we have seen cases go both ways. I completely agree with that, Jessica. We used to really not worry about natural catastrophe exposures too much on warehouse legal, and I think that's a mistake to take that approach now. You do need to be concerned about those exposures, and I would encourage everyone to have a close relationship with your own claims department to make sure you understand, and I would certainly work through your leadership to do that, understand what the approach is for your company. Some things that we've seen that have proven helpful occasionally, but obviously claims that are very large and go to trial, they can do all the right things and the jury may feel differently, but one of the things that could help is let's say you have a warehouse in Miami. If they have a written hurricane preparedness plan that they make their customers aware of and possibly make their customer sign, and they implement and do everything that they told their customer they would do that their customer agreed was okay and there was still a loss, it would at least leave them an avenue to possibly get out of being held legally liable for a hurricane or some other natural catastrophe. That's all of our questions. Thank you so much, Sharon and Jessica, for a very informative and interactive presentation. Thanks also to our attendees for your questions and your participation in today's webinar. All attendees will receive an email with a link to our electronic survey. Your feedback is really important to IMUA and will help us with future program development. Please take a moment to respond to the survey and provide feedback to IMUA. This ends today's webinar. Have a great rest of the day.

webinar

Lillian Coulson

Demystifying Warehouse Legal Liability

Warehouse Legal Liability

Bailment Insurance

Personal Property of Others

Sharon Primerano

Jessica Frankovich

warehouse receipts

underwriting