Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Bailee's Customers Insurance

What it is:

Bailee's customers insurance covers any damage or destruction that a bailee might do to a bailor's property.

How it works (Example):

Bailment is a transfer of custody of property rather than a transfer of ownership of property. For example, John Doe owns a watch, and he takes it to the watch shop for repair. The watch goes into bailment, meaning that the shop has custody of and control over the watch, but does not own the watch.

Who pays if the watch is stolen from the watch shop, or a flood occurs in the watch shop? Bailee's customers insurance does. This coverage, which the bailee pays for (the watch shop, in this example), would cover the loss.
 

Why it Matters:

When we entrust our property or assets to others, we are often putting those things in bailment. In this sense, the concept is similar to that of fiduciary duty. In both cases, someone is being entrusted with others' assets and must act to protect those assets while in their custody. Bailment happens every day: at the bank, when we put things in a safe deposit box, at a restaurant when we give the car to the valet, and at the dry cleaners when we leave a dress to be cleaned. The person managing your stock portfolio, and the person managing your rental property also are bailees in a sense. Bailee's customers insurance ensures that customers are compensated when losses occur to property left in the custody of others.