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Reviewed by Jul 30, 2021| Updated on
A warehouse bond can be described as financial protection for individuals or businesses that keep in a storage facility. Such bonds cover losses if the storage facility fails to satisfy the terms in the contract. That is, if the storage operator fails to stand by the terms in the contract, a third-party is bound to compensate the client for the loss caused.
Failing to satisfy the contract terms may occur due to various causes, such as theft, fire, roof collapse, water damage, unsatisfactory maintenance of the storage space, damage due to mishandling, climate control failure, lost inventory, and more.
Typically, warehouse bonds are underwritten for a duration of one year and must be renewed annually.
Warehouse bonds must comply with the rules and regulations framed by the government regarding storage and handling of various goods. The relevant items are reviewed when setting the bond amount, such as the value of goods stored in the warehouse and the number of warehouses associated. They may also differ on a case-by-case basis. Sometimes, the cost may also depend on the warehouse owner's credit score and business financials.
Warehouse bonds come with a number of limitations and exclusions. Acts of God is considered as the absolute exclusion in the fine print of the bond. Since natural calamities, such as earthquake and flood, are not controllable by the warehouse owner, they are solemnly treated as a liability.
However, if there has been a warning about the possible calamity and the warehouse operator has not taken care to protect the goods, then the compensation will be provided as per the terms in the bond.