Understanding Warehouse Liability for Loss and Damage to Stored Goods

When you store goods with a warehouse, you should understand the warehouse’s liability for loss or damage to your goods. Importantly, warehouse liability is different than that of your transportation providers. I’ve found that depositors of goods sometimes assume that a warehouse is automatically responsible for any and all loss or damage to their goods while stored. But, that’s just not the case.

UCC Liability

Warehouse liability for loss or damage to stored goods arises primarily under a state’s adoption of Article 7 of the Uniform Commercial Code (UCC), which governs warehouse receipts and storage of goods.

Article 7 of the UCC (specifically UCC § 7-204), states that “a warehouse is liable for damages for loss or injury to goods caused by its failure to exercise care with regard to the goods that a reasonably careful person would exercise under similar circumstances.” Essentially, this is a “negligence” standard. This standard is typically included in the applicable warehousing agreement or warehouse receipt. But, of course, it can be modified via contract.

Let’s take an example: The warehouse drives a forklift through a pallet of your goods. That would generally qualify for the warehouse’s liability for the damage to your goods.

Another example: A tornado destroys the warehouse and your goods stored in the warehouse. Here, the warehouse was not negligent (the cause of loss was a natural disaster), so the warehouse is not liable for the loss or damage to your goods.

How about another example: A fire breaks out at the warehouse, destroying your goods. Well, unless the warehouse was negligent (e.g., the warehouse negligently failed to maintain its fire safety systems), the warehouse is again not liable.

Contracted Liability

As noted, a warehouse’s liability can be modified by contract to standard higher than reasonable care. Although most warehouses push back on any deviation from standard “reasonable care” liability, I have found some success in expanding potential liability, particularly if the standard is tied to the nature of the goods to be stored.

For example, if the warehouse is storing food-related goods, you may be able to modify the warehouse’s liability along the lines of “failure to exercise care with regard to the goods that a reasonably careful warehouse regularly engaged in storing Products designed and manufactured for human consumption.”

In litigation, the standard of care often hinges on expert testimony, so tying the standard to the nature of the products stored can provide you with more precise expert testimony regarding the warehouse’s “reasonable care” with respect to those specific goods.

Mysterious Disappearance

Many standard warehousing agreements will contain a “mysterious disappearance” provision stating that the warehouse is not liable for shortage or mysterious disappearance of goods, absent a showing of the warehouse’s failure to exercise reasonable care.

This provision is tied to some very old case law, and can be frustrating for depositors: “So, I gave you some of my goods, and now you just can’t find them - and you're not liable??” However, the concept is consistent with reasonable care because if there is no evidence that the warehouse negligently caused the disappearance of the goods, it should not be liable for the loss.

That’s a fairly hard pill for depositors to accept, so I often find success in removal of mysterious disappearance provisions, but the standard of care still remains. However, depositors should ensure the applicable warehousing agreement contains language surrounding inventory count and reconciliation and shrinkage allowance towards capturing goods that are mysteriously lost.

Limitations of Liability

As with transportation agreements, warehouses will attempt to place limitations on their liability, whether via terms and conditions on a warehouse receipt or a warehousing agreement.

Limitations of liability vary by warehouse and often type of goods stored. Often, the warehouse will limit its liability on a $ per pound or $ per item, with an overall limitation of liability.

Towards negotiating limitations of liability, depositors need to understand the value of their goods. Warehouses can price for increased liability, so you would expect higher rates charged for increased liability for loss or damage to the stored goods.

Insurance

Warehouse insurance is a key concept that is commonly misunderstood: Warehouses do not insure your goods. You may see that the warehouse maintains warehouse legal liability insurance – this does not insure your goods. Instead, warehouse legal liability insurance covers only the warehouse’s legal liability (reasonable care) for loss or damage to goods.

So, if your goods are damaged, but the warehouse wasn't liable for the damage (take the tornado example above), warehouse legal liability insurance will not provide coverage to the loss or damage to your goods.

While it is important to ensure that the warehouse maintains warehouse legal liability coverage, depositors should also maintain their own all-risk coverage for their stored goods.

Notice and Claim Deadlines

As with most vendor agreements, it is import for depositors to understand and follow claims notice and filing (presentment) deadlines detailed in the warehouse receipt or warehousing agreement towards ensuring claims may be honored.

Although warehouse liability for loss and damage to stored goods is not regulated in the same way as transportation agreements, it is critically important to understand these issues when determining with whom you store your goods.

For assistance on these issues, Shippers Interest Consulting is here to help!

About Shippers Interest Consulting: Shippers Interest Consulting is focused on helping shippers mitigate risk and protect profits related to their transportation and warehousing vendors. Shippers Interest Consulting is owned and operated by Tyler Biddle, a transportation attorney and consultant who has spent years working with shippers, freight brokers, motor carriers, and warehouses on transportation and warehousing-related issues.  You can learn more about Shippers Interest Consulting at www.shippersinterestconsulting.com and by following us on LinkedIn.