What Is Bailee’s Customer Insurance?

Bailee coverage is a specialized form of inland marine insurance that protects businesses against losses related to customer property temporarily under their care. Often used by businesses like auto repair shops, dry cleaners and even restaurants with valet services, this insurance ensures that businesses dealing with customer items are shielded from the financial repercussions of accidental damages, theft or other unforeseen incidents.

Learn how much bailee coverage works and how much it can cost.

Key Takeaways Bailee coverage can insure customer's property left in your care against theft, leaks from sprinkler systems, fire, accidental collisions while in transit and more. Generally, you will not be covered for losses caused by flooding, pests and employee theft. The average cost is around $736 per year for an inland marine insurance policy that includes bailee coverage with $100,000 in coverage. Unlimited, damage in process and mysterious disappearance bailee coverages offer extensive, specialized protections for businesses handling customer property, covering fluctuating values, items damaged during repairs and missing items respectively.

What Is Bailee Insurance Used For?

Service-based businesses that take temporary custody of their customer’s property face a unique risk: they can be held liable for theft or damage of that property while it is in their care. Bailee insurance coverage, a form of inland marine business insurance, provides those businesses (also called bailees) with coverage for this unique liability risk, unlike general liability, business property coverage or business personal property insurance.

If a customer’s property is damaged, destroyed or lost while in the possession of the bailee, bailee coverage helps pay for the loss or damage.

Without this coverage, your business will be on the hook to replace or repair any customer property should it be damaged or destroyed while under your care.

How Does Bailee Coverage Work?

Your bailee policy activates when the bailee gives the bailor a receipt for a stored item. It is the bailee’s responsibility to return the customer’s property either in its received condition or usually improved in some way (e.g., a dirty coat left at a dry cleaner should be returned clean). However, accidents happen and if the item is damaged or stolen, bailee coverage can provide coverage for such losses.

For example, imagine you own a high-end watch repair shop that catches on fire, and despite your best efforts to extinguish the flames, several customer watches get damaged. Without bailee insurance, you'd likely have to compensate customers out of your own pocket, which could be financially devastating.

Your bailee coverage will also help cover your legal fees, including your legal defense costs, should a customer choose to sue you or your business.

What Does Bailee Insurance Cover?

A standard bailee's customer insurance policy typically offers protection against the following risks:

• Break-ins and theft
• Leaks from water or sprinkler systems
• Damage from windstorms, lightning and hail
• Accidental collisions
• Fires and blasts
• Labor strikes, riots and public disturbances
• Earthquakes
• Vandalism
• Harm or loss while being transported by a carrier

What Isn’t Covered?

Bailee insurance often has certain exclusions, meaning the policy won't cover losses caused by:

• Employee theft
• Flooding
• Harm caused by pests like rodents or insects
• Deceptive or unlawful actions
• Deliberately parting with the property due to deceit, scam or misleading representation

Who Needs Bailee Coverage?

Most professionals handling customer's property can find value in bailee insurance. These include:

• Businesses with valet services
• Auction houses
• Shops specializing in clock or watch repairs
• Stores focused on computer or electronic repairs
• Delivery services (trucking)
• Establishments cleaning curtains or rugs
• Dry cleaning services and dressmakers
• Event organizers
• Specialists in furniture repair and restoration
• Auto repair shops and garages
• Jewelry stores and pawnbrokers
• Dining establishments with coat check services
• Storage units and large warehouses
• Enterprises involved in tool repair and maintenance
• Veterinary clinics and pet boarding facilities
• Tow truck companies

What Types of Bailee Coverage Are There?

We've broken down the three main bailee coverages so you can understand your options.

Unlimited Bailee Coverage

Unlimited bailee insurance coverage offers the most extensive protection by covering items without a set limit. Traditional policies require you to specify a maximum value of customer property in your possession. Underestimating this value or having a sudden influx of valuable items can lead to being underinsured during a loss.

With unlimited coverage, such risks are eliminated. However, the higher premium for this expansive coverage might only be justified for businesses with unpredictable and fluctuating values of customer property in their care.

Damage in Process Bailee Coverage

The "Damage in Process" provision, while often a part of standard bailee's insurance, is not universally included in all policies. This coverage specifically addresses situations where a customer's item is damaged during the repair process by the business or its employees.

For repair shops or businesses engaged in restorative work, it's essential to ensure that their bailee's insurance incorporates this specific coverage to protect against such incidents.

Mysterious Disappearance Bailee Coverage

Lost property coverage ensures protection for customer items that go missing while in your possession. While many standard bailee insurance policies might not include this by default, it's often available as an added option for an additional premium.

The risk of losing customer property might seem remote, but for certain businesses, like dry cleaners, mix-ups like returning the wrong items to customers can occur. Thus, businesses in such sectors should seriously consider adding this coverage to their bailee's insurance.

How Much Does Bailee Coverage Cost?

A small business can expect to pay an average of $736 per year for an inland marine policy that covers $100,000 in damages.^[1] The cost will vary depending on where your business is located, the nature of what it is you store or shop and how much coverage you require.

Your business industry will also have an effect on the cost and limits of coverage. For example, bailee coverage for animal care can cost as low as $29 per year for a policy with coverage limits of $15,000 per occurrence and $30,000 aggregate.^[2]

How To Get Bailee’s Coverage for Your Small Business

When exploring coverage options, it's advisable to gather three to five estimates from various insurers. These companies will typically ask for details about your business like its sector, location, yearly earnings and staff count. But repeatedly providing these details to every insurer can be cumbersome.

Luckily, platforms like SmartFinancial make it simpler. Complete a single questionnaire about your coverage preferences and budget and you might find a tailored commercial insurance policy in mere minutes. Simply input your zip code below to get your complimentary insurance quote.