Insurance & 3PLs: Cover your Assets

Congratulations! You have decided to outsource to a third-party logistics company (3PL). Great! 

Now you can focus on your business while the 3PL manages the heavy lifting.

3PLs can provide your business with a wide variety of service capabilities. Warehousing, kitting and assembly services, B2C/B2B order fulfillment, EDI, distributions, transportation, inventory management, to name just a few. You may put some or all your inventory in a 3PL warehouse. 

So how would insurance work in that case? Many 3PLs have great insurance coverage, but are your assets 100% insured against loss? Typically … No. 

3PLs commonly carry policies for property insurance, general liability, auto liability, workers’ compensation, employers’ liability, umbrella, professional liability, warehouse legal liability, cyber, crime, employment related practices, to name a few. Now that is a ton of coverage! That much coverage is not cheap. 

But when it comes to your assets (the stuff you own and put in the 3PL warehouse), you should seek an insurance provider/broker to make sure you have all the proper insurance for your business and the goods you sell.  

To understand different policy types (at least how our broker explained them to us), let us review some of the more common coverages a 3PL may carry. This information was provided to us by our broker, for our business.  

You should always seek counsel from your insurance provider for your business, and your property. Those professionals will best provide you with coverage that suits your situation. 

Property Insurance: Commercial property insurance can help cover a 3PL’s building, equipment, furniture, supplies, and other insured business property against covered causes of loss. Whether customer inventory or other property belonging to others is covered depends on the policy. Brands should not assume the warehouse’s property insurance protects their goods.

Business income and extra expense coverage may help the 3PL with lost income and additional operating expenses following covered property damage, subject to policy terms. This does not automatically provide coverage for a customer’s lost sales.

General Liability: A general liability insurance policy could help cover claims if the 3PL caused: 

Third-party bodily injury: ex. a customer gets hurt after slipping and falling at the 3PL, they can sue the 3PL. The insurance policy includes bodily injury liability coverage, so it can help pay for their medical bills. 

Third-party property damage: If a 3PL, for some reason, has employees that work at a client’s house, the 3PL faces a risk of causing property damage. Property damage liability coverage can help pay for repair or replacement costs if the 3PL damages someone else’s belongings. This does not apply to the 3PL’s customers’ property in the 3PL’s care, custody, or control and why a warehouse legal liability policy is needed (Yep, we will get to Warehouse Legal Liability further in this article). 

Reputational harm : Someone can sue the 3PL for libel or slander because of something the owners or employees said. If this happens, general liability insurance can help cover the 3PL’s legal costs to defend the business. 

Advertising injury : The 3PL can get sued for copyright infringement. For example, a photographer can sue the 3PL if they use their photo in your ads without permission. 

Automobile Liability: Hired auto coverage means the 3PL has coverage when owners or employees drive a rented, leased or borrowed car for business. (“Hired and Non-Owned Auto Coverage | HNOA | The Hartford”) 

 "Non-owned auto applies to employees using their own cars for business." (“Hired and Non-Owned Auto Coverage | HNOA | The Hartford”) It provides extra coverage over the employee’s personal auto coverage for bodily injury and property damage liability. 

Workers’ Compensation: Statutory coverage that provides medical and wage benefits to people who are injured or become ill at work. 

Employer's liability: Insurance is coverage that helps pay a business owner's costs related to a lawsuit resulting from an employee's work-related injury or illness. These would be negligence lawsuits typically brought by families post accidents. 

Umbrella: Additional liability coverage that provides additional limits over general liability, auto, and employers liability. 

Professional Liability: Professional liability will cover legal defense and any settlement awarded to the customer, per the policy terms. A professional Insurance policy is applicable to a wide range of claims alleging damages or losses because of the services the 3PL provided. (“Errors & Omissions for Transportation & Logistics Professionals”) 

Warehouse Legal Liability: This coverage generally responds when the warehouse is legally liable for physical loss or damage to customer goods, subject to the policy’s conditions, exclusions, and limits. The storage agreement or warehouse receipt can affect the operator’s liability, and a contractual promise to accept greater responsibility does not necessarily mean the insurer covers that promise. 

Examples of losses that may involve warehouse liability include product damage from careless handling, negligent temperature control, or a failure to maintain the facility with reasonable care. Whether any particular loss is covered depends on the facts, the agreement, and the policy.

Cyber Insurance: Depending on the coverage purchased, cyber insurance may help a 3PL with incident response, data breach liability, recovery expenses, and lost business income resulting from a covered cyber event. Coverage can include security and privacy liability and other policy-specific protections. 

An unexpected WMS or integration outage does not automatically trigger coverage. A policy may distinguish a malicious security breach from an accidental system failure. Outages at a cloud WMS or another technology vendor may require dependent or contingent business interruption coverage. Waiting periods, deductibles, exclusions, and sublimits also matter. 

Brands should ask their own broker how an interruption at their 3PL or its technology providers could affect their coverage. The 3PL's cyber policy should not be assumed to reimburse every customer’s lost sales.

Crime: Employee Theft Coverage, also known as employee dishonesty coverage, protects companies from theft committed by employees. Employee Theft Coverage provides financial coverage for losses or damages to money, securities, and other property resulting directly from theft committed by an employee, whether identified or not, acting alone or in collusion with others. 

Employment Practices Liability Insurance (EPLI): Includes coverage for defense costs and damages related to various employment-related claims including allegations of Wrongful Termination, Discrimination, Workplace Harassment and Retaliation.  

What Insurance Covers Inventory Stored at a 3PL?

The policy list above is the warehouse's insurance. Almost none of it is insurance on your goods. The question brand owners actually search for is simpler than the list: if my inventory is sitting in someone else's building and something happens to it, who pays? The honest answer has four parts.

1. Warehouse liability coverage depends on legal responsibility and policy terms

Warehouse legal liability is generally liability coverage rather than blanket first-party inventory coverage. Minnesota’s warehouse duty-of-care statute holds a warehouse responsible for loss or injury caused by failure to exercise reasonable care. Unless otherwise agreed, it is not liable for damage that reasonable care could not have avoided. Contractual obligations and policy language must also be reviewed. 

The International Warehouse Logistics Association updated its Standard Contract Terms and Conditions for Merchandise Warehouses in January 2026. Section 10 addresses warehouse liability and limitations of damages, including reasonable care and the depositor’s responsibility for arranging its own inventory insurance if desired. This is an industry template, not a rule that automatically applies to every 3PL agreement.

A fire, storm, or water leak may damage inventory without creating warehouse liability if the operator exercised reasonable care and did not assume broader responsibility. However, the cause of the event alone does not establish whether the warehouse was negligent or whether insurance responds.

2. Contractual liability limits can be much lower than inventory value

A storage agreement may limit the warehouse’s liability by weight, unit, or another agreed measure. The January 2026 IWLA template leaves the amount and unit blank for the parties to establish; it does not set a universal $0.50-per-pound limit. Minnesota law also permits certain contractual limits and provides for requests to increase liability, potentially at a higher rate. 

For illustration, if an agreement limits liability to $0.50 per pound, a 20-pound case would have a $10 contractual limit, even if its retail value is $600. This example is not a statement of KSP’s terms or an industry-wide reimbursement rate. The actual payment depends on liability, the contract, the policy, and applicable law.

Ask how to request a higher agreed value and whether the insurer accepts the resulting contractual obligations. Increasing contractual liability does not automatically increase insurance coverage. 

3. Ask your broker about stock throughput and other inventory coverage

Stock throughput is a marine insurance policy that can combine transit and inventory storage coverage, including goods stored at third-party warehouses. It is one option brands can discuss with their broker when evaluating protection for inventory throughout the supply chain.

Coverage depends on the policy’s terms, limits, deductibles, and exclusions. Ask your broker whether your existing insurance covers inventory at your 3PL, how that inventory is valued, and whether your limits accommodate peak inventory levels. Also confirm any restrictions involving flood, windstorm, earthquake, or processing damage.

4. Policy documentation requirements matter

In PQ Corp. v. Lexington Insurance Co., the Seventh Circuit applied Illinois law and upheld the insurer’s denial of coverage because the warehouse had not satisfied its policy’s documentation requirements. The warehouse had accepted fault in a settlement that also included PQ’s agreement not to collect the judgment from it. The practical lesson is that having insurance and accepting responsibility do not guarantee an insurer will pay. Brands should confirm that their warehouse’s documentation meets the requirements of its current policy.

This case applied Illinois law and the wording of particular policies. For a Minnesota warehouse, the practical question is whether its current documents meet its own policy requirements. A document labeled “warehouse receipt” does not by itself guarantee coverage. 

What to ask your 3PL for

Before the first pallet arrives, review the following with your 3PL and insurance broker.

• Evidence of current warehouse legal liability insurance, including the carrier, policy period, and relevant limits. A certificate of insurance is a summary; ask your broker what further policy information is needed to evaluate protection. 

• The storage agreement’s liability clause, including the basis of any limit, applicable caps, treatment of shortages, and procedure for requesting increased liability.

• The receiving or storage documentation used for your goods, and confirmation that it meets the warehouse insurer’s actual requirements.

• The written process for reporting damage or missing inventory, including who receives the claim and what supporting records are required.

• The valuation and reimbursement terms that apply to a loss. Do not assume a warehouse will voluntarily pay more than its agreement requires.

Sources: Amwins, Unpacking Warehouse Legal Liability · Cottingham & Butler, Warehouse Legal Liability · Standard Contract Terms and Conditions for Merchandise Warehouses, Sec. 10 · Marsh, Stock Throughput · PQ Corp. v. Lexington Ins. Co., 860 F.3d 1026 (7th Cir. 2017).  Minnesota Statutes - Section 336.7-204, Corvus by Travelers: Cyber business interruption, WMS outages, and coverage conditions. The Hartford - Commercial Property Insurance and Business Owners Policy 
TT Club - Logistics Operators Cover, The Hartford - Certificate of Insurance

This article is general information, not insurance or legal advice.

Understanding the division between commercial cargo insurance and 3PL warehouse insurance prevents expensive surprises when inventory is in transit or storage. But while insurance policies provide a legal backstop, operational discipline is what prevents loss in the first place.

At KSP, we back our clients with barcode-scanned verification at every touch, Logiwa WMS tracking, and a 99.999% order accuracy standard. If we misplace or damage your inventory under our care, we take accountability. This is because a strong fulfillment partnership is built on operational integrity, not hiding behind shrink allowances. 

We hope this guide helps business owners make informed decisions when evaluating 3PL partners and operational risk. In the end, it is the brand owner’s responsibility, not the 3PL, to ensure total inventory coverage while partnering with an operator that backs its accuracy standards.