Bailee – Coverage for Property Entrusted to Your Care
Accidents happen. As a business owner, imagine you operate a car mechanic shop and a fire destroys your facility, including your client’s expensive sports car entrusted to your care. Bailee coverage can come to your rescue.
TL;DR
- Bailee’s insurance is coverage for other people’s personal property in the temporary possession of your business.
- It matters because if property is lost or damaged while in the company’s care, the company could face significant financial and legal liabilities.
- One common pitfall is misunderstanding the difference between legal liability and bailee coverage. Legal liability only covers damage to a customer’s property if the business is at fault, while bailee coverage is broader.
- One quick win is to always confirm with your insurance provider whether your policy includes bailee coverage or if additional coverage is needed.
What Is Bailee Coverage in Insurance?
Plain-language definition: Bailee insurance is a policy that helps cover the cost of other people’s things while you’re looking after them. For example, if you run a storage company and something gets damaged, this insurance can help cover the cost.
Technical definition: Bailee coverage is a policy that provides insurance for the loss or damage of the property of others (bailors) while in the temporary custody of a bailee. This coverage features prominently in policies related to businesses where bailment relationships, the legal term for these exchanges, are common.
Key Related Terms to Know
- Bailor – The person or business that temporarily hands over its property to another party, the bailee.
- Bailee – The person or business temporarily responsible for another party’s property. For example, a safety deposit box company is a bailee.
- Bailment – The legal relationship between a bailor and bailee, which usually involves a contractual agreement for the temporary transfer of personal property.
- Bailment for Hire – A type of bailment where both the bailee and bailor receive mutual benefit. For example, a car mechanic shop benefits from charging fees for service, and the car owner benefits by having their car repaired.
- Gross Negligence – A severe lack of ordinary diligence or care, which can affect bailee responsibilities.
Common Questions About Bailee
What does bailee liability cover?
Bailee liability traditionally covers loss or damage of customer property if the company is proven negligent – such as the car mechanic failing to secure the workshop adequately, leading to theft. However, bailee liability does not cover the damaged car if the damage wasn’t due to the mechanic’s negligence.
Is bailee coverage necessary?
Bailee coverage can be fundamental for businesses having temporary possession of other’s property. A coat check attendant, a valet parking service, or a jewelry repair shop are classic examples. These businesses would be protected by bailee coverage should the items in their care be damaged or lost, regardless of whether they were at fault.
What are common examples of bailments?
Common bailment examples include car repairs (you are the bailor, the mechanic is the bailee), valet parking (you are the bailor, the parking service is the bailee), or leaving possessions in a safety deposit box (you’re the bailor, and the bank is the bailee).
What is involuntary bailment?
Involuntary bailment refers to a situation where one party assumes the role of a bailee without an agreement in place, such as finding abandoned property and taking care of it until the owner can be located.
Bailee vs. Bailor
Bailees and bailors in a bailment relationship play different roles. A bailee covers the business temporarily in possession of a customer’s property, whereas a bailor is the owner of that property. The bailee typically has a fiduciary responsibility to take reasonable care of the bailor’s property during the bailment period.
Comparison Area | Bailee | Bailor
|
Primary Use Case | Businesses that hold, store, repair, or transport customer property | Customers who entrust their property to businesses for specific services |
Coverage/Concept Type | Loss or damage to customers’ property | Loss or damage to own property |
Typical Exclusions | Excludes loss/damage if bailee proves absence of negligence | No exclusions, as bailors are the property owners |
Who Is Most Affected by Errors | Businesses with high gross receipts from bailment services | Customers who entrust high-value property to businesses |
Common Mistakes | Misclassifying voluntary and involuntary bailment | Failing to verify bailee coverage before entrusting property |
Real Claim Examples Involving Bailee
Scenario 1: A customer entrusts her rare, vintage timepiece to a jeweler for repairs. Unfortunately, the shopping center where the jewelry store is located suffers a fire outbreak resulting in the loss of the timepiece. Here, the jeweler, as the bailee, would need to leverage his bailee coverage to compensate for the loss.
Scenario 2: A dry cleaner mistakenly damages a customer’s expensive designer dress. The bailee coverage of the dry cleaner would cater for the cost of the damaged dress, saving the business from significant out-of-pocket expenses.
Scenario 3: A car mechanic is fixing a customer’s car in his garage. Overnight, an unexpected flood sweeps through the garage, damaging the car. The mechanic’s bailee coverage would typically cover the loss, protecting the business from financial distress.
Limitations and Common Mistakes
- Not all policies include coverage for bailee. Always confirm with your insurance provider if bailee coverage is included.
- In some cases, bailee coverage may not apply if the bailee has not demonstrated a reasonable duty of care for the bailor’s property.
- Some bailee coverages exclude certain types of property, so always check what’s covered.
- This coverage generally doesn’t extend to belongings of workers, so another type of policy may be necessary for such cases.
How to Explain Bailee Coverage to Clients
To a Personal Lines client: “Think of bailee coverage like this: You’re borrowing your friend’s power washer. While it’s in your care, it gets stolen from your garage. Bailee insurance is like the insurance that would help replace your friend’s power washer.”
To a Small Business Owner: “As a business owner, bailee’s coverage protects you if something happens to your customer’s property under your care. For instance, if you are a dry cleaner, and a fire destroys the clothes under your care, the policy will pay for the loss.”
To a CFO or Risk Manager: “Bailee coverage safeguards your business against the financial implications arising from the loss or damage of customers’ property in your care. It’s a solid risk management strategy for businesses dealing with customer property.”