What is Bailee's Customer Insurance?

Bailee's customer insurance protects businesses against damage, destruction, or loss of customer property while it is in their possession. A bailee may be any person or business who has been given temporary custody of someone else's property. A dry cleaner, a repair shop, or a parking garage may be a bailee, while the customer is the bailor.

Regular business property insurance plans cover only the property of the business owner. Any business that routinely accepts custody of customers' property may also need bailee's customer insurance.

Understanding Bailee's Customer Insurance

Bailee's customer insurance provides coverage for customer property that is on the bailee's premises, or while it is in transit to and from it. Hazards covered in such policies include fire, lightning, theft, burglary, robbery, explosion, collision, flood, earthquake, and damage or destruction in the course of transportation by a carrier.

Key Takeaways

  • A bailee is a business owner who takes temporary possession of property belonging to others.
  • Ordinary business insurance covers the loss or destruction of the owner's property, but not the customers' property.
  • Bailee customer insurance covers any damages that occur while the property is on the business premises or in transit to and from it.

The insurance goes into effect when the bailee issues a receipt to the bailor for the item.

If a business regularly takes possession of customer property (holding it in bailment) and is being compensated for services, the business is responsible for returning the property in the same condition as it was received. 

For example, when a customer takes a dress to the dry cleaner to be cleaned, the dress is temporarily under the control of the bailee. The bailor expects the dress to be returned in good condition. If the dress is stolen or irreparably damaged while in the care of the cleaner, bailee's customers' insurance covers the loss.

A good bailee's insurance policy coverage should include protection from the following perils:

  • Water or flood damage
  • Burglary or robbery
  • Wind damage
  • Explosion
  • Lightning
  • Collision

Bailee's insurance policies typically exclude losses stemming from rodents or insects.

Who Needs Bailee's Customers Insurance?

Any type of company that regularly stores, repairs, or refurbishes customer property should seriously consider adding bailee's customer insurance coverage.

Regular business liability policies may cover damage or loss due to the bailee's negligence, but not due to other causes like natural disasters.

Common types of businesses that hold property in bailment include jewelers, repair shops, tailors, warehouses, storage units, auto mechanics, restoration services companies, valet services, and courier's services.

Banks also carry bailee's insurance in order to cover the contents of safe deposit boxes.

Other liability insurance policies may cover the business if a customer's property is damaged due to the owner or an employee's negligence. However, most other adverse events, from extreme weather to burglary, are specifically exempted from general liability, property, and even warehouse insurance policies.