What is Bailee's Customers Insurance?

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

How Does Bailee's Customers Insurance Work?

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 Does Bailee's Customers Insurance Matter?

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.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

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