An Overview of the Warehouseman’s Legal Liability
The Basics of Warehousemans Legal Liability (W.L.L) is the legal liability a warehouseman assumes for property it receives into its possession for storage. Warehouseman’s Legal Liability is also referred to as "fire legal liability" or "cooking liability." The W.L.L policy covers a warehouseman’s liability for loss or damage to the property for which the warehouseman is legally responsible, but not for damage or loss caused by fire due to the negligence of the warehouseman. The insured is not liable for a claim in excess of his relationship to the claimant. This policy extends coverage beyond the period of storage to give coverage during the ordinary testing, demonstration, or operation of the stored property. The policy applies to all property accepted by the insured for storage except vehicles and mobile equipment.
W.L.L is most commonly used when it’s too expensive to have policies to cover each individual unit of storage. For example, if each television is worth $2,000 , you may be able to get a building that has enough space for 100 televisions for a short period of time at the right price. You need to have liability coverage because if one of the televisions accidentally falls over and breaks, you could easily be responsible for the $2,000 property damage.
There are several types of warehouseman’s legal liability policies. Among them are:
•Warehouse Operators Book Policies – Provides full insurance against loss from all causes except actual theft. Upon payment of any claim, the warehouseman has an immediately assigned lien on the property to the full extent of the owner’s unpaid charges and expenses.
•Warehouse Operators Specified Coverage Policy – Can be written as a business personal property form, an on-premises special form, or a report lowering form. The property covered by such forms is typically limited to only the property of certain customers or classes of customers. Policies are written on a blanket basis to cover the total amount of liability, or are written for specific items of storage in amounts set forth in daily or weekly reports.
Warehouseman Duties: What Are They?
The duties and responsibilities of a warehouseman encompass a range of legal obligations under common law and federal statutes. Common law cases, especially in the Uniform Commercial Code context, suggest that a warehouseman is defined as "any person that by a warehouse receipt or similar instrument acknowledges possession of goods and contracts to deliver them." The definition further includes "a caretaker of goods" with the statutory duty to return the goods to the owner’s order upon request. The statutory obligations of a warehouseman – such as a storage unit facility – are related to the receipt of goods from the owner for storage, has the legal duty to exercise a certain degree of care for the goods while they are stored, and return the goods upon demand of the viewer for delivery at the termination of the storage agreement, unless otherwise provided by contract.
When goods are delivered to a warehouseman, the warehouseman is bound to:
(1) Store them in a good and proper manner only
(2) Deliver them only to the owner or his authorized agent (ie. in accordance with a power of attorney)
Types of Legal Liability for Warehousemen
The legal liabilities to which a warehouseman may be subject are outlined in various traditional common law actions, such as negligence, conversion and breach of contract actions. It is therefore conceivable that any one or a combination of these legal theories may be used to hold a warehouseman liable for damage to or loss of stored goods.
Negligence
In a negligence action, the plaintiff must prove: To the extent a warehouseman’s actions fall below the standard of care, a warehouseman can be found negligent. Negligence may consist of acts or omissions on the part of a warehouseman, but it may also consist of a failure to act. If there is a duty to act, failure to perform the requested act may form the basis for a negligence claim. Whether or not there is a duty to act is a question of fact to be determined by the courts after considering all circumstances under which the alleged negligence claims arose. A wrongful act or omission on the part of a warehouseman may give rise to a punitive damages claim if the wrongful act was intentional or malicious. (A punitive damages claim against a warehouseman seeking punitive damages is ripe for litigation and should be vigorously defended. A careful review of the applicable Rules of Court is required to determine the appropriate method of removal of the punitive damages claim to the Supreme Court so that the claim will not be returned to the Provincial Court. The Rules of Court contain certain requirements which must be met to ensure that the Provincial Court has jurisdiction to consider the claim.)
Conversion
Conversion arises where one person wrongfully exercises dominion over another person’s personal property. A plaintiff who brings a conversion action must prove "conversion". Conversion may consist of: To establish conversion, the plaintiff need not show that the defendant harmed or destroyed the movable property. In fact, conversion may be accomplished without a physical touching of the plaintiff’s property. For example, a defendant interferes with a plaintiff’s property, intentionally retaining a chattel to the exclusion of the plaintiff’s right to possession, or transferring a chattel to a third party renders the defendant liable for conversion. Any act of dominion over movable property which is inconsistent with the plaintiff’s dominion over it constitutes conversion.
Breach of Contract
A breach of contract occurs when a party to a contract fails to fulfill a contractual obligation. A plaintiff bringing an action for breach of contract would be required to establish the following: The damages recoverable by a plaintiff for a breach of contract depend on the nature of the contract involved. Generally, damages for a breach of a contract are based on the principle that a plaintiff must be placed in the same position as if the contract had been fully performed, rather than the plaintiff’s actual loss or benefit. The plaintiff must mitigate any damages suffered as the result of a breach of contract.
Contracts and Warehouse Receipts: Understanding the Legal Landscape
As previously discussed, warehouse personnel typically must know that they are in the business of receiving and storing goods. Once this is established, courts look to contracts, warehouse receipts, and their legal definitions of "warehouse" and "warehouseman" to define and limit warehouseman’s liability.
1. Storage contracts and warehouse receipts
Membership in a warehouse receipt, storage or deposit organization is usually not enough to form a contract that establishes warehouse liability for misdelivery of goods. A clear relationship can be found if the warehouseman has entered into either:
· A warehouse storage or deposit contract (which might be evidenced by a warehouse receipt).
· A distribution contract that expressly identifies goods to be received and stored by the warehouseman. If these contracts are silent on warehouse liability, the Uniform Commercial (UCC) Code provisions on warehouse liability apply. A clear relationship leading to liability can also be found through conduct or activity that implies warehouse liability. Courts can look to community and industry custom for evidence of this activity. The Uniform Commercial Code’s defined terms of "warehouse" and "warehouseman" are automatically incorporated into storage contracts. In addition, storage supply industry standards of a "warehouse" or "warehouseman," or trade names of storage suppliers (e.g. self-storage) can provide evidence of warehouse liability. A bailee (owner of goods) may argue that the warehouseman has satisfied the UCC definition of a "warehouseman" by engaging in storage activities. However, the UCC only provides evidence that a bailee may reasonably believe the individual or organization is in the warehouse business. Courts do not always find that the bailee’s reasonable belief is enough to impose liability on the "warehouseman" to the bailor. Evidence that warehouse liability has been incurred through a contract or other activity is usually determined by a court after examining the totality of the circumstances. Circumstantial evidence may include: (a) the agreed upon consideration between the parties and any other evidence of a bargained for exchange (b) advertising of specific services offered by the warehouseman (c) the duration of the relationship between the parties and (d) the extent to which the warehouseman has been held out as a warehouse receipt issuer.
2. Limitations on warehouse liability
Warehouse liability has become a complex topic due to an intricate patchwork of case law and statutes. The Uniform Commercial Code and the United States Warehousing Act (UWTA) are the most widely adopted warehouse liability standards. The UWC is a federal law that establishes federal warehouse law as the primary law for types of warehouses that function under its provisions. The UWC provides federal remedies for loss or damage of goods but does not provide guidance on warehouse liability. The elements of warehouse liability include:
· Direct physical damage to goods IN STORAGE in possession of the bailed.
· Existence of a bailment (express or implied).
· Bailee’s failure to use ordinary care (negligence). These elements are interpreted broadly by courts when considering warehouse liability in self-storage contracts. The Uniform Commercial Code and the great majority of states require strict compliance with all aspects of the act, including notice, to perfect a shipment’s lien. Warehouse liability can exist if no special protection is given to property while being held by a bailee.
3. Insurance implications
Self-storage organizations are bailee’s for hire and, as such, may limit their liability. If the warehouseman limits its liability in a bailment contract, the bailee must pay the agreed upon additional premium and the warehouseman must maintain the required policy and certificates. Certificates of insurance should include all of the applicable terms of the contract.
Mitigating Risk: How Warehousemen Manage Liability
In addition to exclusive remedies statutes, warehousemen can help manage legal risks through risk management techniques. At the basics, Risk Management is a collection of techniques intended to identify and control risks and losses. A risk manager helps an organization avoid legal liability by reducing the frequency and severity of what they call "incidents." Many risk managers organize the process into five steps: (1) identification of exposure to losses; (2) measurement of exposure; (3) economic analysis of exposures; (4) risk control; and (5) financing.
Often, warehousemen use a combination of self-insurance, insurance, and contracts to handle risk. By self-insuring, a warehouseman assumes a larger amount of potential claims , but is able to keep insurance premiums low. Insurance can cover claims in excess of the warehouseman’s self-insured amount. When a warehouseman uses contracts to allocate risk, they typically agree to provide insurance coverage (indemnification) to another party in the event that that other party suffers a loss as a result of the warehouseman’s actions.
For example, a warehouseman might use a lease to designate a percentage of liability for negligent actions performed within the area the warehouseman uses. In addition, a warehouseman will often require a carrier to name it as an additional insured on its policy for the warehouseman’s benefit in the event a claim is brought against the carrier.
Case Law: How Precedents Affect Legal Liabilities for Warehousemen
When it comes to warehousing law, historical cases and precedents form aspects of codified law that impact legal liability in the modern day. As such, it is key for warehouse business owners and managers to stay apprised of relevant rulings.
A large part of how the legal liability of a warehouseman is understood in the modern day derives from the influential case of Niagra Fire Ins. Co. v. New York Central R.R. Co. and it is ruling from the Supreme Court of Michigan in 1974. In this case, the ruling stated the following: "[A] warehouseman is not an absolute insurer of the goods delivered to him by a depositor but does impliedly and automatically warrant its own good faith in making statements concerning them to owners or creditors of the depositor." This essentially means that in regards to its legal liability, a warehouseman should not be held responsible for essentially anything else than failing to give a good account of the goods stored with them. This helps define "gross negligence" as something a warehouseman may be liable for if they should not have erred in their handling of goods. Unfortunately, as is often the case with case precedent, many warehouses are faced with more plaintiffs who try to get around rulings such as that in Niagra. A range of recent cases in the 1990’s faced the courts on some level with cousin claims by plaintiffs aimed at displacing the plaintiff’s discovery burden. The application of the Warehouse Receipts Act has helped clarify matters over time – the listed sections here are, "…parts 2, 3, 5, 6, and 7 of the Uniform Warehouse Receipts Act (Act)." These listed parts help define aspects of a warehouseman’s liability and responsibilities, particularly when it comes to loss or damage of goods while stored with that warehouse. A later ruling in 1999 by the Michigan Court of Appeals and Court of Claims further solidifies the position of a warehouseman in Michigan that the plaintiff bears the burden of proof for actions of negligence – the plaintiff is responsible for demonstrating the actions of a warehouseman constituted negligence and that they are directly responsible for the damage to goods being stored with them. As responsible business owners, warehouses must stay abreast to applicable case law and other pertinent rulings.
The Future of Warehouseman Liability
As we take stock of the landscape for warehouseman liability, there are several trends or future developments that are taking shape that are likely to impact the legal landscape. Some emerging trends include:
- (1) Rate of technological change: An ever-changing array of rapidly developing technologies is creating an endless stream of new risks and challenges for warehousemen. Digital warehousing, as it is called, technology will likely continue to become part of everyday operations. While this will increase efficiency for the storage of goods, this will also put warehousemen in a better position to capture (and be deemed, at times, to be able to protect and keep safe) the goods stored. This will therefore open up more attacks from insurers and even regulators, who look to warehousemen as the ultimate insurers of the stored goods.
- (2) Longer retention periods: As discussed above in the section on Negligence , storage periods of six months have become a norm, if even that. That may be a result of the recent economic downturn, which saw lower levels of turnover and less business (therefore longer periods to store goods). As we emerge from that, we may see higher volumes, and therefore shorter periods of storage. But we also may also see greater pressures on retailers, from their customers, to have more flexibility in storing goods. That would mean longer storage times, and therefore more likelihood of liability.
- (3) Expanding regulatory requirements: Governments continue to look to warehousemen to help with everything from protection of the environment to collection of taxes. Those efforts will increase liability for warehousemen, and drive up the insurance costs that warehousemen must pay to guard against this emerging risk. The question will be whether insurers will be willing to respond to these emerging risks.