Understanding the Relationship of Bailment
In the world of insurance claims, bailment refers to a legal relationship where one party (the bailor) transfers physical possession of personal property to another party (the bailee) for a specific purpose, such as repair, cleaning, or storage. The bailee does not own the property but has a legal duty to return it or dispose of it according to the bailor's instructions.
For candidates preparing with the complete Claims Adjuster exam guide, understanding bailment is critical. Most standard commercial property policies exclude property of others in the care, custody, or control of the insured. This gap is where Bailee's Customers Insurance comes into play. It is a specialized form of inland marine insurance designed to protect the bailee against loss or damage to property belonging to their customers, regardless of legal liability in many cases.
Types of Bailment and Standards of Care
| Feature | Type of Bailment | Standard of Care Required |
|---|---|---|
| For the Sole Benefit of the Bailor | Bailee owes a low degree of care; liable only for gross negligence. | |
| For the Sole Benefit of the Bailee | Bailee owes a high degree of care; liable for even slight negligence. | |
| Mutual Benefit (Commercial) | Bailee owes reasonable or ordinary care; this is the most common commercial scenario. |
Bailee's Customers Insurance vs. Legal Liability
One of the most important distinctions for a claims adjuster is the difference between a Legal Liability policy and a Bailee’s Customers policy. Under a standard liability policy, the insurer only pays if the insured (the bailee) is found legally negligent for the damage. If a fire starts in a neighboring building and spreads to a dry cleaner, the dry cleaner might not be legally liable because they didn't cause the fire.
However, Bailee's Customers Insurance is typically written on a "goodwill" basis. This means it pays for damage to the customer's property regardless of whether the business owner was at fault. This preserves the business's reputation and ensures the customer is made whole. To master these concepts, students should regularly engage with practice Claims Adjuster questions to recognize the nuances in policy triggers.
Common Businesses Requiring Bailee Coverage
Adjusting a Bailee's Customers Claim
When an adjuster receives a claim involving Bailee's Customers Insurance, several factors must be investigated immediately:
- Care, Custody, or Control: Was the property actually in the physical possession of the insured at the time of the loss?
- In Transit Coverage: Many Bailee policies extend coverage to property while it is being transported to or from the customer's location.
- Valuation: Adjusters must determine if the policy pays Actual Cash Value (ACV) or Replacement Cost. In many garment-related claims, specific depreciation tables are used based on the age of the clothing.
- Exclusions: Common exclusions include mysterious disappearance, theft from an unattended vehicle, or damage caused by the processing itself (e.g., a chemical reaction during the dry cleaning process).
The adjuster must also verify the limits of insurance. Policies often have a per-article limit and an occurrence limit. If a major fire destroys 500 suits at a dry cleaner, the aggregate limit of the policy may be tested.
Exam Tip: The 'No Benefit to Bailee' Clause