Protection of Property: Bailment and Insurance 12 Protection of Property: Bailment and Insurance © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

LEARNING OBJECTIVES Outline the nature of bailment CH 12 LEARNING OBJECTIVES Outline the nature of bailment Examine the various forms of bailment Describe the various forms of insurance Examine the nature of insurance and the concept of indemnity for loss Identify the parties associated with insurance contracts Essentials of Canadian Business Law, 1st Canadian Edition Slide 12-1 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

Nature of Bailment Bailment 12.1 Nature of Bailment Bailment Transfer of possession of goods/chattels by bailor (owner – title holder) to bailee Possession by bailee for a specific purpose Later return or delivery of goods by bailee to bailor Essentials of Canadian Business Law, 1st Canadian Edition Slide 12-2 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

Nature of Bailment (Cont’d) 12.1 Nature of Bailment (Cont’d) Sub-bailment Bailment by bailee to a sub-bailee By: Custom or practice of a trade Express agreement Bailor may sue bailee if the goods: Cannot be recovered from the sub-bailee Lost or damaged by the sub-bailee Essentials of Canadian Business Law, 1st Canadian Edition Slide 12-3 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

Sub-Bailment—Example Figure 12-1 Sub-Bailment—Example Essentials of Canadian Business Law, 1st Canadian Edition Slide 1-4 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

Nature of Bailment (Cont’d) 12.1 Nature of Bailment (Cont’d) Bailor-Bailee Relationship Delivery to bailee Apparent or actual delivery Constructive possession – delivery is implied by conduct Upon delivery the bailee has the rights of the owner Action against interference or damage to the goods Essentials of Canadian Business Law, 1st Canadian Edition Slide 12-5 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

Nature of Bailment (Cont’d) 12.1 Nature of Bailment (Cont’d) Bailor-Bailee Relationship Important duty by bailee – to return the goods or dispose of them per the bailor’s direction Exact goods must be returned or interchangeable commodities Failure to return the goods is the tort of conversion What types of bailment do we experience daily? Essentials of Canadian Business Law, 1st Canadian Edition Slide 12-6 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

Nature of Bailment (Cont’d) 12.1 Nature of Bailment (Cont’d) Liability for Loss or Damage Standard of care by bailee Differs for each type of bailment Onus of proof shifts to the bailee Must show standard of care met and no negligence Commercial bailment Exemption clause – limitation of bailee’s liability Must be carefully drawn and brought to the bailor’s attention Essentials of Canadian Business Law, 1st Canadian Edition Slide 12-7 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

Types of Bailment Gratuitous Bailment No charge for bailment 12.2 Types of Bailment Gratuitous Bailment No charge for bailment Standard of care by the bailee varies with the benefit and the nature of the goods Benefit of bailor – minimal liability; reasonable care as if bailee’s own goods Benefit of bailee – highest liability; must not be negligent Benefit of both – moderate liability Essentials of Canadian Business Law, 1st Canadian Edition Slide 12-8 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

Types of Bailment (Cont’d) 12.2 Types of Bailment (Cont’d) Bailment for Reward Bailee receives a fee for bailment Liability of the bailee varies with each type of relationship Storage of Goods Storage facility is the bailee with possession and control of the goods Essentials of Canadian Business Law, 1st Canadian Edition Slide 12-9 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

Types of Bailment (Cont’d) 12.2 Types of Bailment (Cont’d) Warehouse Storage Warehouse operator must take Reasonable care as expected for the nature of the business Protect the goods from all foreseeable risks Warehouse receipt entitles the holder to claim the bailed goods Bills of lading set out the terms of bailment by a common carrier Statutory lien allows the bailee to Retain the goods until paid Sell the goods by public auction- notice to bailor Essentials of Canadian Business Law, 1st Canadian Edition Slide 12-10 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

Types of Bailment (Cont’d) 12.2 Types of Bailment (Cont’d) Parking Lots Short-term bailment if keys are deposited by owner, giving control to the bailee Rental space only is a license, not bailment Exemption clause Must be brought to bailor’s attention On ticket or direct reference (signs) Essentials of Canadian Business Law, 1st Canadian Edition Slide 12-11 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

Types of Bailment (Cont’d) 12.2 Types of Bailment (Cont’d) Bailment for Repair or Service Bailment is part of repair Proprietor is liable for: Reasonable care of the goods (varies with the nature of the goods) Repairs must be done according to standards set for the skill required Common law lien Retain the goods until repairs are paid Sale of goods at public auction to pay for repairs Essentials of Canadian Business Law, 1st Canadian Edition Slide 12-12 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

Types of Bailment (Cont’d) 12.2 Types of Bailment (Cont’d) Rental of a Chattel Possession and use of the goods in return for payment Written agreement sets out the rights and duties of the parties Bailee responsibility Reasonable care in use and operation of the goods for the purpose intended Bailor responsibility Goods are reasonably fit for use Goods are free from defects Notice of inherent or unusual danger or risk Essentials of Canadian Business Law, 1st Canadian Edition Slide 12-13 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

Types of Bailment (Cont’d) 12.2 Types of Bailment (Cont’d) Carriage of Goods Delivery of goods to a set destination Private carriers Carriage is not normal business Duty to take reasonable care of the goods Common carriers Business specialized in carriage of goods Bailee has very high standard of care as total control of goods is with the bailee Essentials of Canadian Business Law, 1st Canadian Edition Slide 12-14 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

Types of Bailment (Cont’d) 12.2 Types of Bailment (Cont’d) Common carriers Limitations of liability Statutory Damage caused by an act of God Improper labeling or packaging Nature of the goods would cause self destruction Bailor responsibility Payment of rates Disclosure of the type of goods shipped Disclosure of dangerous goods If a change of ownership occurs, the carrier will deliver the goods according to the bill of lading Essentials of Canadian Business Law, 1st Canadian Edition Slide 12-15 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

Types of Bailment (Cont’d) 12.2 Types of Bailment (Cont’d) Pledge of Personal Property as Security for Debt Bailor-debtor delivers securities (bonds / share certificates) to a bailee-creditor for security on repayment of a debt Default on the debt allows the bailee-creditor to sell the securities to satisfy the debt Essentials of Canadian Business Law, 1st Canadian Edition Slide 12-16 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

Types of Bailment (Cont’d) 12.2 Types of Bailment (Cont’d) Innkeepers Inn offers food and lodging Covered by statute Limitation of Innkeepers liability Required by statute to be posted Requirement - provision for safe keeping for guests’ valuables Essentials of Canadian Business Law, 1st Canadian Edition Slide 12-17 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

12.3 Insurance Insurance Person or business (insured) shifts the risk of loss to an insurance company (insurer) Based on terms in the contract (policy) Insurer protects against unforeseen events that cause loss, damage or financial injuries by providing compensation to the insured Insured pays money (premium) Based on statistical calculations enabling the insurers to establish a fund to cover losses Essentials of Canadian Business Law, 1st Canadian Edition Slide 12-18 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

Forms of Insurance Fire Insurance 12.4 Forms of Insurance Fire Insurance Indemnification to anyone with an interest in property for any loss that might occur as a result of fire Coverage for owners, secured creditors, and tenants to the extent of their interest in the property Coverage is usually for fire, smoke and water damage and even lightning Essentials of Canadian Business Law, 1st Canadian Edition Slide 12-19 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

Forms of Insurance (Cont’d) 12.4 Forms of Insurance (Cont’d) Life Insurance Payment at the time of death to a beneficiary May be taken on one’s own life or the life of another in whom one has an insurable interest Purposes Protection for beneficiaries Investment Essentials of Canadian Business Law, 1st Canadian Edition Slide 12-20 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

Forms of Insurance (Cont’d) 12.4 Forms of Insurance (Cont’d) Life Insurance Information in the application becomes part of the policy and fraudulent statements by the applicant may allow the insurer to avoid payment Governed by provincial legislation Specific terms legislated in these policies Controls the operation of the insurance companies Exception to many insurance rules Essentials of Canadian Business Law, 1st Canadian Edition Slide 12-21 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

Forms of Insurance (Cont’d) 12.4 Forms of Insurance (Cont’d) Sickness and Accident Insurance Protection against income loss Usually group benefits to employees Liability and Negligence Insurance Indemnification for claims made by others against the insured due to the negligence by the insured (person, business, or employees) Essentials of Canadian Business Law, 1st Canadian Edition Slide 12-22 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

Forms of Insurance (Cont’d) 12.4 Forms of Insurance (Cont’d) Liability and Negligence Insurance Types Auto – governed by statute Premises (occupiers’ liability) Manufacturer / products Professional (errors and omissions) Environmental Special Types of Insurance Specialized purposes (business interruption, employee dishonesty, theft of goods) Essentials of Canadian Business Law, 1st Canadian Edition Slide 12-23 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

Forms of Insurance (Cont’d) 12.4 Forms of Insurance (Cont’d) The Nature of an Insurance Policy Contract is based on utmost good faith Nondisclosure may allow avoidance by insurer Exception is innocent misrepresentation/nondisclosure Essentials of Canadian Business Law, 1st Canadian Edition Slide 12-24 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

Forms of Insurance (Cont’d) 12.4 Forms of Insurance (Cont’d) The Nature of the Insurance Policy Riders / endorsements Clauses altering or adding coverage Insurable interest Insured must have a financial interest Continued existence is a benefit Occurrence of an event might cause a loss Who would have an insurable interest in a commercial building? Essentials of Canadian Business Law, 1st Canadian Edition Slide 12-25 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

Forms of Insurance (Cont’d) 12.4 Forms of Insurance (Cont’d) Change of Risk Substantial changes of risk require notification to the insurer Permits the insurer to determine if coverage should be continued and the premium to be charged What are examples of changes of risk and what consequences may arise from disclosure and nondisclosure? Essentials of Canadian Business Law, 1st Canadian Edition Slide 12-26 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

The Concept of Indemnity for Loss 12.5 The Concept of Indemnity for Loss Indemnity Place the insured in the position before the loss, with no profit from the loss Exception - life and accident insurance To prevent profit by the insured the insurer has special rights Salvage Insurer claims the goods when it has paid the value to the insured Essentials of Canadian Business Law, 1st Canadian Edition Slide 12-27 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

The Concept of Indemnity for Loss (Cont’d) 12.5 The Concept of Indemnity for Loss (Cont’d) Indemnity Special rights of insurer Subrogation Transfer of insured’s rights to the insurer Prevents double payment to the insured as liability is placed upon the person responsible for the loss Contribution Sharing the loss among the insurers Co-insurer - insured becomes responsible for part of the loss Essentials of Canadian Business Law, 1st Canadian Edition Slide 12-28 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

Insurance—Subrogation Figure 12-3 Insurance—Subrogation Essentials of Canadian Business Law, 1st Canadian Edition Slide 1-29 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

The Parties Associated with Insurance Contracts 12.6 The Parties Associated with Insurance Contracts Agents Negotiate the insurance contract Liability to insurer Liability to insured when there is reliance on the agent’s statements Brokers Arrange appropriate coverage May act for either party – insured and insurer Essentials of Canadian Business Law, 1st Canadian Edition Slide 12-30 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

The Parties Associated with Insurance Contracts (Cont’d) 12.6 The Parties Associated with Insurance Contracts (Cont’d) Adjusters Investigate reports of loss Report to the insurer Insurers settle on the basis of the investigation Essentials of Canadian Business Law, 1st Canadian Edition Slide 12-31 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

SUMMARY Bailment (Bailor & Bailee) CH 12 SUMMARY Bailment (Bailor & Bailee) Transfer of possession (not title) of goods from bailor to bailee with return to the bailor Bailee has a standard of care dependent upon the type of bailment and the nature of the goods Limitations on liability by legislation Essentials of Canadian Business Law, 1st Canadian Edition Slide 12-32 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

SUMMARY (Cont’d) Insurance (Insured & Insurer) CH 12 SUMMARY (Cont’d) Insurance (Insured & Insurer) Contract to indemnify the insured for losses covered under the policy Contract is based upon utmost good faith Insured must have an insurable interest Insurer has rights to salvage, subrogation and contribution to prevent the insured from benefiting from the loss Other parties in the insurance process are agents, brokers and adjusters Essentials of Canadian Business Law, 1st Canadian Edition Slide 12-33 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.