If you’re considering working with a third-party logistics (3PL) provider for warehousing, it’s easy to get excited about the many services the 3PL can provide for your products. Before you sign on the dotted line, however, it’s important to understand and agree upon what happens in the event of an accident and/or damage to those products. In this article, we’ll take a closer look at 3PL warehouse insurance, including “who’s responsible for what” between you and your 3PL partner.
“What do you mean you don’t insure my products?”
For some companies, especially those that are new to warehousing and 3PL outsourcing, it comes as a surprise that a 3PL provider does not typically insure its customers’ products.
The 3PL must take all reasonable action to protect the products under its care, but the insurance of these products is ultimately the responsibility of the products’ owner.
In most cases, you (as the 3PL customer) will simply add a rider to your current insurance policy, which lists the 3PL’s warehouse as a storage facility for your insured products. There are other instances in which your products can be insured by the 3PL provider’s policy, but the 3PL will charge for this, which will result in a higher cost to you than the addition of the rider to your own policy.
What 3PL warehouse insurance covers
3PL insurance is primarily responsible for covering its people, equipment and buildings. When it comes to your products, Warehousemen Legal Liability Insurance is carried by every responsible 3PL warehousing company and stipulates that the 3PL provider is responsible for the safe storage of your goods and must provide “reasonable care” for your goods while in its care. If the provider does not provide “reasonable care” and its negligence results in loss or damage to your goods, the warehouse provider’s insurance company covers losses to a contractually-agreed-upon extent.
So, for product damage, what 3PL warehouse insurance really covers is the 3PL’s negligence. Examples of negligence include shipping the wrong product or incorrect loading or handling of product that results in damage. Importantly, all warehouse contracts substantially limit liability, and if your product is especially valuable, that liability level may be far below the actual cost of your goods. In this event, the 3PL insurance would not fully cover your loss, even if the warehouse is 100% negligent. Your insurance would kick in to cover the rest.
You are also fully responsible for your goods that are damaged or lost due to “acts of God” (e.g., fires, floods, storms, earthquakes, etc.).
In addition to Warehousemen Legal Liability Insurance, other types of insurance that 3PLs will have include Commercial General Liability insurance, as well as Employers Liability insurance and Workers’ Compensation Insurance. Importantly, the 3PL’s Workers’ Compensation Insurance covers its employees even if they are injured handling your products.
Setting terms in the 3PL contract
The specific levels of liability and limitations will be explicitly laid out in the contract that you sign with your 3PL. To avoid conflict and finger pointing, this contract should cover every conceivable occurrence that can affect your inventory, and explicitly delineate the financial responsibility of each party in the event that loss occurs. Additionally, if your 3PL is providing a higher degree of care than what its insurance policy defines as “reasonable,” you need to be sure that the 3PL is financially strong enough to cover all that it is agreeing to.
As with just about every item in a 3PL contract, the terms are negotiable between you and your 3PL partner. For a look at a standard warehousing contract, see this example from the International Warehouse Logistics Association (IWLA).
3PL warehousing on the West Coast
Good partners recognize that risk management is a role that both parties share in a business relationship. At Weber Logistics, we take extreme care to assure that our clients understand exactly what benefits and limitations we offer with regard the care and custody of their valuable goods. To learn more about working with a 3PL for warehousing and logistics services, contact Weber today.