0. Protection of Property: Bailment and Insurance12
Protection of Property: Bailment and Insurance
© 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

1. 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 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

2. 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 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

3. 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 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

4. 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.

5. 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 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

6. 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 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

7. 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 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

8. 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 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

9. 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 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

10. 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 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

11. 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 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

12. 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 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

13. 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 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

14. 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 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

15. 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 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

16. 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 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

17. 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 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

18. 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 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

19. 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 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

20. 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 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

21. 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 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

22. 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 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

23. 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 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

24. 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 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

25. 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 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

26. 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 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

27. 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 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

28. 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 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

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

30. 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 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

31. 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 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

32. 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 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.

33. 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 © 2005 McGraw-Hill Ryerson Ltd., All Rights Reserved.