What Is Warehouse Legal Liability?
To understand the need for warehouse legal liability, it is helpful to first consider what warehouse legal liability is and how it is handled. Besides the insurance implications, how legal liability and loss liability are defined and distinguished may or may not really matter to a warehouseman as a business. No doubt warehouse legal liability needs to be understood by the persons and businesses doing business with the warehouseman, and legal liability for goods stored or in care of a warehouseman for compensation is the very essence of the warehouseman or warehouseman related business relationship.
Legal liability of a warehouseman is the obligation of the warehouseman to care for goods accepted for storage, handling, distribution, transportation and other services. Legal liability includes loss of the property itself and any damage done to the goods so as to diminish their value. Insurance policies which include warehouse legal liability coverage are very specific about the limits of the warehouse legal liability coverage and the terms and conditions that may apply . However, store door delivery and warehousemen’s legal liability coverage are not one in the same; the former being store door delivery coverage likely governed by a different contract or set of insuring conditions. In an insurance or surety sense, liability would define the extent to which an insured could expect indemnification or payment for damages caused by that insured. In the instance that there are contractual or statutory limitations on legal liability, or in the instance that there are limits on the amount of damages that can be claimed by a depositor or customer, the amount to be indemnified or paid would not be diminished as a function of insurance policy limits. Conversely, legal liability may be viable against an insured guarantor of a warehouseman’s legal liability even though a specific insuring agreement or liability coverage may not exist. As a business matter, legal liability is the liability assumed when property is accepted for storage or other handling and distribution, and loss liability is the potential loss as a function of the business relationship. No doubt these two concepts cross paths and on occasions converge.
Various Liabilities Associated with Warehouse Facilities
Warehouses may face a variety of different types of legal liability, including liability for property damage from intentional and unintentional damage to third-party property to liability for third-party personal injury. In addition, warehouses may face liability under contract or tort for not completing or not completing a service or duty in a specific timeframe.
Liability for property damage is frequently governed by the law of bailments. The law of bailments applies to a contractual or statutory relationship whereby property is transferred from one individual to another, with the promise that the property will be returned, or otherwise disposed of, as agreed. Once the bailment is created, depending on the nature of the bailment, the bailee (the person to whom the property is delivered) will owe a certain standard of care to the bailor (the person delivering the property). There are several types of specific standards of care that are applied to specific circumstances of bailments.
Liability for personal injury to a third-party may arise from negligence, or it may arise from strict liability. A warehouse may also face liability for personal injury to a third-party under contract for failing to complete a service done on the third-party’s property to the contractual terms.
Liability for property damage may also arise from both the federal government and the states, through printed shipping statements. Printed shipping statements on shipping documents, such as "Not Responsible For," or "At Owner’s Risk," are not effective to limit or disclaim liability, and are deemed by many courts to not be prominent enough to adequately convey a disclaimer or limitation on liability to a shipper sending goods.
In addition, failure to look at other contracts between bailors and bailees may unintentionally limit the warehouse’s liability. The bill of lading, which is frequently with transportation companies and freight forwarders, must have the right balance of information to adequately convey the applicable liability limitation to shippers, consignees, and carriers.
Significant Regulations Regarding Liabilities for Warehouses
Discussion of the legal liability of warehousemen in general and under state and federal law can be complicated. On the one hand, there are a plethora of federal and state statutes and regulations potentially applicable, as well as the common law applicable in each particular state. Federal law, for example, is often embodied by the Uniform Commercial Code ("UCC") as adopted in the various states. It is also possible that international treaties can apply to an undertaking that is international in scope. In this brief discussion, however, the focus will be on key laws applying to warehouse liability in the United States.
The United Nations Convention on Contract for the International Carriage of Goods Wholly or Partly by Sea (often referred to as the "Rotterdam Rules") applies to agreements for international door-to-door carriage by sea and is more specific than the U.N. Convention on the Carriage of Goods by Sea (Hague-Visby Rules), which is more generic as to the rights of carriers.
Many states have adopted the Uniform Warehouse Receipt Act establishing the liabilities of warehousemen. This body of law governs the relationships between all persons involved in warehousing, including the warehousing company (the bailee), the depositor of the goods (the bailor), and any third-party bank, factoring company or other party holding a negative pledge or other security interest in the inventory (the hypothecator). The law in most states provides for a system of self-service where the storage company simply stores goods with the owner’s locks, and the owner keeps the keys with the right of access to his own goods. The law also provides that the bailee may charge for the service and have the right of lien and to seek reimbursement of reasonable counsel fees incurred should litigation result.
In addition to the Uniform Warehouse Act, the UCC governs responsibilities and liabilities of bailees. All states have adopted the UCC or some version of it. While to a large extent the UCC and the Uniform Warehouse Act overlap, they do differ in some respects. The UCC provides more detail with respect to certain issues such as the liability or exclusion of liability for negligence or other acts and omissions. The UCC vests the storage unit with a statutory right of lien on the stored goods for storage costs and costs incurred for certain other services.
The UCC also requires the warehouseman in the course of a business to issue a negotiable receipt for any goods stored, whereas the Uniform Warehouse Act requires the issuing of a receipt with respect to each barrel or package stored. The distinction may be significant. For example, a lessee may be able to defeat a negative pledge purportedly created by the giving of a negative pledge on "all inventory" if the stored goods are barrels or boxes and are covered by bills of lading or other transportation documents governed by the U.N. Convention.
If the subject of the store is the personal property of a lessee, then Uniform Commercial Code Article 9 will apply to any security interest purportedly granted by the lessee. The rights of the lessor of the goods in a leaseback transaction, such that the lessor also stores the goods, are determined by applicable state law pursuant to UCC Article 1.
Embracing Risk Management Within Warehouses
Risk management is a critical aspect of any business, particularly for warehouses that face a high volume of inventory and equipment. By implementing a robust risk management strategy, warehouses can significantly reduce their potential legal liabilities and safeguard their operations.
Insurance is a fundamental component of risk management for warehouses. Commercial general liability insurance can protect the business from claims arising from property damage or bodily injury caused by products, completed operations, or even slip-and-fall accidents on the premises. Employers’ liability and workers’ compensation insurance cover on-the-job injuries to employees, while commercial property insurance protects warehouses from damage to their physical space and assets. It is essential for warehouse owners to maintain appropriate levels of insurance to cover the risks associated with their specific operations.
In addition to insurance, warehouses must prioritize safety in their operations. This includes developing and enforcing safety protocols among employees , conducting regular safety inspections, and providing regular training and refresher courses to ensure all employees are well-versed in safety practices. Proper safety measures can help prevent accidents that can lead to personal injury and property damage, thus minimizing the potential for legal claims.
Contractual agreements can limit legal liability for warehouses. For example, warehouses can include limitation of liability provisions in their contracts to reduce their exposure to potential legal claims. Indemnification clauses can obligate a third-party shipping company to assume the legal responsibility for any damage to the warehouse’s property that may occur during the shipping process. By managing risk through careful contractual language, warehouses can position themselves to defend against legal claims stemming from their third-party contractors.
All of these strategies work together to manage risk effectively and minimize the legal liabilities to which warehouses may be exposed.
Typical Legal Issues Associated with Warehouses
Before entering into a warehouse agreement, it is wise to clarify the limits of legal liability for the warehouse and the customer. A number of common legal disputes arise as a result of storage services: the issue of damage claims, or late delivery or inflated charges caused by negligence on the part of the warehouse service provider.
Article 6: 1934 of Quebec’s Civil Code indicates the liability of warehousemen. The first obligation with which a warehouseman is burdened when a good is placed in its possession, is that of simply retaining the good. Absent any provisions excluding liability, that duty of safe custody is assumed.
Breach of that duty of safe custody arises when the goods are damaged, destroyed or lost. That is when the warehouseman, fails to exercise reasonable care. In addition, other types of liability may be incurred in case of negligence in management, or in case of breach of an obligation arising from the contract of storage.
Another factor is the limitation of liability clauses often present in warehouse agreements. They are proportional to the risks they cover. This means that they will be valid to the extent that the dangers are foreseeable and do not cause very important damages. For this reason, it is important to have a contract drafted by a lawyer to protect against draconian limitation of liability clauses.
Proven Strategies to Reduce Liability Within Warehouses
One of the best practices warehouses can adopt to limit their risk of legal liability is maintaining meticulous records, whether that be protocols and forms for documenting employee injuries or documenting legal compliance. For example, for an OSHA complaint investigation, it may be important to set up protocols and forms relating to:
Warehouses must properly document training, administration of first aid, accident investigations, and potentially other events, including:
This can help ensure important facts are not forgotten as time elapses, and can help ensure full information is available to retain a lawyer if need be.
It is also generally important to provide active and ongoing training, from the highest level management to the warehouse workers themselves. It helps ensure workers actually understand the policies and procedures you have in place, and what is expected of them. A warehouse may also consider training that is targeted to specific populations, such as:
Weighing against these benefits , training takes time and money, costs may increase if training must be refreshed periodically, and employment law is a constantly evolving field. As a law firm dedicated to clients in the workforce industry, we find that one of the biggest challenges in dealing with a legal dispute is that time is of the essence. Our clients feel pressed to get the situation under control so they can focus on their day to day business. By taking the appropriate action now, businesses can potentially save significant funds later when a retrospective can find issues could have been avoided by earlier diligence.
Even in the absence of an accident, litigation can loom in the background due to the highly litigious nature of this industry. PPE gear, background checks, alcohol testing, policies, and many other considerations should not be left until after an incident or unfortunate accident. By looking at these issues proactively, you can save your warehouse headaches, and lots of money.