WHAT IS A 'Warehouse Bond '

A warehouse bond is a type of financial protection that assures an individual or business keeping goods in a storage facility that any losses will be covered if the facility fails to meet the terms of its contract. If the warehouse owner or operator fails to meet its contractual obligations, a third-party company called a surety will act as an intermediary and compensate the client for his or her 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 a number of other causes. Warehouse bonds usually 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, in order to guarantee compliance with state laws and regulations regarding the storage and handling of goods. Every state sets different bond amount requirements, which can be based on factors such as the number of warehouses operated, the value of the goods stored in the warehouses, or are set on a case-by-case basis. In some states, the bond cost may also depend on the personal and business financials of the warehouse operator.

For example, the state of Massachusetts requires all public warehousemen to be licensed and bonded, and the bond requirement is $10,000 per warehouse. In other states like New York, the bond amount is set individually, and the cost of the surety bond can be anywhere from 0.5 percent to 25 percent. Bond requirements can also vary depending on the type of warehouse (e.g., grain warehouse, eviction warehouse, public warehouse).

Warehouse Bonds and “Acts of God”

There are many limitations on recovery that can be associated with warehouse bond agreements. For example, “acts of God” are often listed as an absolute exclusion in an agreement. Although a warehouse operator cannot reasonably be expected to control forces of nature like hurricanes and earthquakes, there are circumstances where liability may be imposed. For instance, if there is advance warning of an impending loss and a warehouse operator could have taken reasonable steps to avoid it from happening, they may be found liable. Suppose the warehouse is located along a river that is prone to flooding from hurricanes and the facility had previously sustained damage to cargo stored on the ground floor. In such a scenario, a warehouseman could be found negligent for failure to exercise proper care if they hadn’t moved the cargo to a higher floor or an alternate location when warned that an approaching hurricane had been forecast.

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