Article for Irish Broker Magazine “Goods in Trust” – Article subsequently published in “Irish Broker”.
Re: CUSTOMERS GOODS/GOODS IN TRUST ETC. – BEWARE!
In my capacity as Loss Assessor, I have come across an unusual number of cases involving customers goods where there have been problems vis-à-vis interpretation of Policy cover. A typical example in relation to stock reads as follows:
“Stock and Materials in Trade therein and thereon the property of the Insured are held by them in trust for which they are responsible”.
Traditionally, Loss Adjusters acting for Insurers have regarded this wording as meaning legal responsibility. In other words if an Insured has customers goods in his custody or control and those goods are damaged by an insured peril, it is necessary to demonstrate that the Insured was negligent in some way before cover applies. This clearly creates its own difficulty, particularly in the context of an accidental fire or escape of water. It also raises the question as to who decides who was legally responsible, is it the Loss Adjuster, the Insured or a third party?
My own interpretation of “for which they are responsible” does not mean that the Insured has to be negligent but that the Insured is legally responsible for the goods thus having sufficient financial relationship as to create an insurable interest. Unfortunately, any of the relevant text books have not developed greatly on this subject. They suggest that the wording dictates that the Insured has to be negligent but that in certain cases insurers may be willing to make payments in relation to uninsured customers but primarily personal lines rather than commercial individuals. Some Policies have endorsements or extensions dealing with this aspect and indeed the previously quoted Policy refers to “Customers Goods” and states that
“in so far as such property is not otherwise insured, the insurance by this Policy extends to cover the goods of the customers of the insured which the insured have made themselves responsible even though such goods shall have been bought and paid for”.
This wording again refers to responsibility and the issue is whether this dictates that the Insured has to be negligent. A second condition is that the customers do not have insurance cover on the goods. In practical terms, this can create an embarrassing situation in that an Insured may have suffered a loss involving customers goods and the wording places the onus on the Insured to check with the customer whether insurance cover applies. If cover does apply then presumably the customer will be asked to notify his own insurers. Clearly this is an unsatisfactory situation, particularly where a bailor/bailee relationship exists.
In one of the publications dealing with this issue (Property and Casualty Claims – FW Collins) the author states that under fire and theft policies, items on plant and stock commonly include the phrase “the property of the Insured are held by them in trust for which they are responsible”. The author suggests that it is established that this enables the Insured to recover only to the extent of “his legal liability to the bailor”.
If any of your Clients hold or are responsible for customers goods, then you should examine closely the Policy wording. If the words “for which they are responsible” are omitted, there is no need to investigate the liability of the parties for the loss. A suitable wording would be as follows:
“Stock and Materials in Trade therein and thereon the property of the Insured or held by them in trust”.
As you are aware, “temporarily removed” cover is somewhat limited and does not normally apply to stock. There will be situations where customers goods will not be covered by their own Insurers. There is potential therefore for a significant gap in cover and your Client may have limited recourse under his existing cover in the event that the Adjuster for the insurance company suggests that the loss was purely accidental. The wording as outlined should prevent any difficulty from your Client’s perspective.
Our loss assessing/policyholder representation service continues to grow. The response so far from Brokers could not be more positive. Our service includes the submission of a full and detailed report to the Broker dealing with all relevant issues. Brokers find this invaluable, both from the point of view of claims management but also in the context of adequacy of sums insured etc. If you require any further information or indeed assistance, please do not hesitate to contact me.