Are Warehouse Insurance Policies Covering Today’s Emerging Risks?

Warehouse legal liability insurance has always been one of the most misunderstood insurance contracts in existence.

In general, insurance companies and brokers have limited industry knowledge and understanding of what warehouse operations entail. Not only that, but warehouse risks and vulnerabilities are increasingly complex, and many policies simply aren’t keeping up with today’s sophisticated new systems and regulations.

Here are five emerging risks and vulnerabilities for warehouse companies to watch:

1. Fourth-party warehouse agreements

4PLs have been on the rise over the past five years. While outsourcing offers cost-effective advantages for 3PLs (a larger network of warehouses, additional assets, and labor, etc.), there are inherently increased complexities and risks involved and few carriers offer truly robust policies that cover these emerging risks. For example, package handling by multiple agents could result in damage to the customer goods, despite adhering to 3PL protocol and consistent inventory tools. With few policies in place that protect 3PLs, companies should be aware that they may not have coverage if a claim occurs.

2. Legal defense coverage

More and more responsibility is being extended to the warehouse with customers expecting them to assume more liability. Even with comprehensive ironclad policies, if a customer falsely accuses a warehouse of negligence (for example, theft loss damage), legal fees can be astronomical, and additional complexities can extend litigation as well as cost. There is now a greater probability of a claim finding the warehouse negligent not just because of their actions, but contractually as well.

3. The Food Safety Modernization Act (FSMA)

The FDA is requiring more tracking of food products than ever before. Warehouse companies are required to track and trace where a product originated and where it’s going, increasing the liability in the supply chain and gaps in coverage.

4. Dated products

With the rise of FSMA and tighter regulations, as well as manufacturers trying to protect their product and brand, managing products by their use date is often becoming the responsibility of the warehouse. If a date has passed on a product, the question of whether it is considered damaged goods is a significant grey area. This expands the number of exposures for warehouses, making them more liable for losses.

5. Product recall

Product recalls cost the U.S. economy billions of dollars a year, with the average product recall costing $10 million. Manufacturers are beginning to mitigate their risk in regard to product recalls and instead are looking to transfer that risk onto their vendors, including the warehouse. Product recall coverage can be costly, but a growing number of 3PLs are requesting it now where few did previously.

Warehouse and logistics companies have always faced challenges in trying to mitigate risk, but these and other emerging risks pose new threats. It’s important to work with a broker who is experienced and knowledgeable in third-party logistics and the bailment laws that govern this industry.