What is a Warehouse Bond

A warehouse bond is financial protection for individuals or business keeping goods in a storage facility. The bond gives protection to cover any losses if the storage facility fails to live up to the contract terms. If the operator of the warehouse fails to meet their contractual obligations, a third-party surety company, acting as an intermediary, will compensate the client for loss. 

Warehouse bond claims may arise from fire, theft, water damage, roof collapses, insufficient facility maintenance, damage during handling, climate control failure, lost inventory and various other causes. Warehouse bonds typically remain in effect for 1-year periods and must be renewed annually.

BREAKING DOWN Warehouse Bond

Warehouse bonds are required for warehouse owners in many states, to guarantee compliance with state laws and regulations regarding the storage and handling of goods. Every state sets its bond amount requirements. Items reviewed when setting the bond amount include the number of warehouses operated and the value of the goods stored in the warehouses. Bond requirements may also be on a case-by-case basis. In some states, the bond cost also depends on the warehouse owner’s credit score and business financials.

Each state will stipulate requirements for storage facilities independently. For example, Massachusetts requires all public warehousemen to be licensed and bonded, with a $10,000 per worker bond requirement. In other states like New York, the bond amount is on a case-by-case basis, and the cost of a surety bond can span anywhere from 0.5 percent to 25 percent of the value of goods stored. Bond requirements may also vary depending on the type of warehouses, such as grain warehouse, eviction warehouse, or public warehouse.

Warehouse Bonds and “Acts of God”

There are many limitations on recovery associated with warehouse bond agreements. For example, “acts of God” are often listed as an absolute exclusion in agreements. Although a warehouse owner cannot reasonably be expected to control forces of nature like hurricanes and earthquakes, there are certain circumstances where liability is a consideration. 

For instance, a warehouse operator may be liable for damages if there is a warning of an impending loss, which they should have taken steps to avoid. Suppose a warehouse location is along a river which is prone to flooding, and the facility had previously sustained damage to cargo stored on the ground floor. In such a scenario, if a warehouseman knew of an approaching flood warning, and did nothing, they could be found negligent for failing to exercise proper care by moving the cargo to a higher floor or alternate location.