Liability for Damaged Goods: Insurance Coverage

Introduction

If your business handles, stores, installs, repairs, transports or sells goods, sooner or later something gets damaged. It might be a pallet dropped in a warehouse, stock spoiled in a power cut, a customer’s item scratched during repair, or a high-value component crushed during delivery.

The tricky part is that “damage” doesn’t automatically mean “insurance will pay”. Liability depends on contracts, the point at which risk transfers, and whether you were legally responsible for the goods at the time. Coverage depends on the type of policy you have, the wording, and the exclusions.

This guide explains how liability for damaged goods typically works in the UK and which insurance policies may respond, so you can protect your cashflow and your reputation.

What does “liability for damaged goods” actually mean?

In plain English, liability is your legal responsibility to pay compensation (and often legal costs) because:

• You damaged someone else’s goods

• Your negligence caused damage

• You breached a contract that made you responsible

• You supplied goods that caused damage to other property

A key point: liability insurance is designed to cover your legal liability, not every loss you suffer. If your own stock is damaged, that’s usually a property/stock claim, not a liability claim.

Common scenarios where goods get damaged

Different industries see different patterns, but these are the most common:

• Transit damage: goods crushed, dropped, stolen, water-damaged, or temperature-compromised during delivery.

• Loading/unloading incidents: forklift impact, pallet collapse, tail-lift accidents.

• Storage damage: fire, flood, escape of water, theft, accidental damage, contamination, pest infestation.

• Installation/works damage: goods damaged during fitting, commissioning or on-site works.

• Repairers’ damage: customer items damaged while being repaired, serviced, cleaned or modified.

• Defective products: goods you supplied cause damage to other property or injury.

• Consequential loss disputes: a customer claims not just for the damaged goods, but for knock-on losses (missed deadlines, lost sales, contractual penalties).

Who is liable when goods are damaged? (The key factors)

Liability is rarely “one size fits all”. Insurers and solicitors usually look at these factors.

1) Who owned the goods at the time?

Ownership and risk aren’t always the same thing, but they often align. For example, under many supply contracts, risk transfers on delivery, even if title transfers later.

2) Who had “care, custody or control”?

If you had physical control of the goods (in your warehouse, on your vehicle, on your worksite), you may have a duty of care.

Some liability policies include exclusions or limitations for property in your care, custody or control. That’s why specialist extensions (or separate policies) are often needed.

3) What does the contract say?

Contracts can shift responsibility dramatically. Many businesses unknowingly accept terms that:

• Make them responsible for goods even when they didn’t cause the damage

• Require them to insure the goods

• Impose strict time limits for claims

• Limit (or expand) the types of loss they must pay

Insurance should match your contractual obligations. If you sign contracts that assume you have “all risks” cover, but you only have basic liability, you can be left exposed.

4) Was there negligence?

If the damage happened because you failed to take reasonable care (poor packaging, inadequate strapping, unsafe storage, untrained staff), liability is more likely.

5) Was the damage “sudden and accidental” or gradual?

Many policies respond best to sudden, identifiable incidents. Gradual deterioration, wear and tear, damp, corrosion, vermin, or poor maintenance are often excluded.

The main insurance policies that can cover damaged goods claims

There isn’t one universal “damaged goods insurance”. Coverage is usually a combination of policies depending on what you do.

1) Public Liability Insurance

What it’s for: claims from third parties for injury or property damage caused by your business activities.

When it may help:

• You accidentally damage a client’s property on their premises

• Your staff knock over and damage stock during a site visit

• You cause damage to surrounding property while handling goods

Common catch: many public liability policies restrict cover for property in your custody or control. If you are actively working on the goods, moving them, storing them, or repairing them, you may need an extension.

2) Products Liability Insurance

What it’s for: claims arising from products you supply, manufacture, import or distribute.

When it may help:

• A defective component you supplied causes damage to other property

• A product fails and damages a customer’s equipment

Important: products liability usually covers damage caused by the product, not the cost of replacing the faulty product itself (that’s often considered a “pure product” or “your work” issue).

3) Professional Indemnity Insurance

What it’s for: financial loss caused by professional advice, design, specification, or services.

When it may help:

• Incorrect advice leads to goods being manufactured incorrectly and scrapped

• A design/spec error causes a batch to fail testing

• A mis-declaration or documentation error causes goods to be seized or rejected

PI is often relevant where the loss is mainly financial rather than physical damage.

4) Goods in Transit Insurance

What it’s for: loss or damage to goods while being transported.

Who needs it:

• Couriers and hauliers

• Trades with their own deliveries

• Wholesalers moving stock between sites

• Any business regularly carrying customer goods

Key benefits:

• Can cover goods you own and/or goods you’re responsible for

• Often covers theft, collision, fire, loading/unloading

Watch-outs:

• Limits per vehicle/per consignment

• Security requirements (locked vehicles, alarms, tracking)

• Exclusions for unattended vehicles or overnight parking

5) Stock and Contents (Material Damage) Insurance

What it’s for: damage to your own stock, contents and sometimes customers’ goods on your premises.

When it may help:

• Fire, flood, escape of water damages stock

• Theft from your premises

• Refrigeration breakdown spoils temperature-controlled goods (if extension added)

If you hold customers’ goods, you may need a customers’ goods extension (often called “customers’ goods in your care” or similar).

6) Bailees’ Liability / Customers’ Goods Insurance

What it’s for: specialist cover for businesses that look after other people’s property.

Common for:

• Warehouses and storage facilities

• Logistics firms

• Repairers, cleaners, service centres

• Garages and motor trade

• Exhibition and event contractors

This is often the most direct answer to “we hold customer goods and could be blamed if they’re damaged”.

7) Marine Cargo / Freight Liability (for import/export)

If you import/export, you may need cargo insurance aligned to Incoterms and your supply chain. Freight forwarders and logistics providers may need specific liability cover depending on the services they provide.

8) Contract Works / Erection All Risks (EAR)

What it’s for: damage to works in progress and materials on site.

Relevant where goods are part of a project (construction, installation, engineering). It can cover materials and equipment while on site and sometimes in transit, depending on the wording.

What’s typically covered (and what isn’t)

Every policy differs, but these themes come up repeatedly.

Often covered

• Accidental damage caused by negligence (where liability is established)

• Legal defence costs (sometimes in addition to the limit)

• Sudden, identifiable incidents (drops, collisions, fire, escape of water)

• Third-party property damage (subject to exclusions)

Often excluded or restricted

• Wear and tear, gradual deterioration, damp, corrosion

• Defective workmanship / “your work” exclusions

• Contractual liability you assumed beyond common law

• Damage to the goods you are working on (unless specifically included)

• Loss of use, delay, penalties and other consequential losses (unless endorsed)

• Theft from unattended vehicles or inadequate security

• Temperature deviation without a refrigeration breakdown extension

How claims are valued: replacement, repair, and consequential loss

A damaged goods dispute often escalates because of how the loss is calculated.

• Replacement/repair cost: the direct cost to put the goods back to the pre-loss condition.

• Diminution in value: if repaired goods are worth less.

• Consequential loss: missed deadlines, lost profit, contractual penalties.

Many liability policies focus on the direct property damage and may limit or exclude consequential loss. If your contracts expose you to large knock-on losses, it’s worth reviewing wording and limits.

Practical steps to reduce liability (and improve insurability)

Insurers love good risk management because it reduces frequency and severity.

Tighten contracts and terms

• Use clear limits of liability where appropriate

• Align Incoterms and delivery terms with your insurance

• Avoid accepting “all risks” responsibility unless you have matching cover

Improve handling and storage controls

• Staff training for manual handling and forklift operations

• Racking inspections and load limits

• Packaging standards and pallet quality checks

• Segregation for high-value or fragile goods

Strengthen transit security

• No-unattended-vehicle rules where possible

• Approved locks, alarms, tracking

• Secure overnight parking and route planning

Keep evidence ready

• Condition reports on receipt and dispatch

• Photos at loading/unloading

• Signed delivery notes with exceptions recorded

• CCTV retention policies

Good documentation can be the difference between a defended claim and a paid claim.

Choosing the right cover: a simple checklist

If you’re buying or reviewing cover, ask these questions:

1. Do we handle other people’s goods (storage, repair, installation, transport)?

2. Do we need cover for goods in transit and what are the maximum values?

3. Do we need a customers’ goods / bailees’ liability extension?

4. Are there care, custody and control exclusions in our public liability?

5. Do our contracts include consequential loss exposure?

6. What are our worst-case values per item, per pallet, per vehicle, per site?

7. Are there security warranties (locks, alarms, tracking, unattended vehicle rules)?

8. Do we need specialist cover for temperature-controlled goods?

Example: which policy responds? (Quick scenarios)

• Forklift punctures a client’s pallet in your warehouse: often bailees’ liability/customers’ goods; sometimes public liability with the right extension.

• Your driver brakes sharply and goods fall in the van: goods in transit.

• Fire in your premises destroys your own stock: stock/contents (material damage).

• You install equipment incorrectly and it damages the client’s machinery: public liability and/or products liability; if design/spec advice is involved, professional indemnity may be relevant.

• A product you supplied overheats and damages a customer’s property: products liability.

FAQs

Does public liability cover damage to customer goods I’m working on?

Sometimes, but often only if the policy includes a specific extension. Many policies restrict property in your care, custody or control.

What’s the difference between customers’ goods cover and public liability?

Public liability covers your legal liability for injury/property damage to third parties. Customers’ goods/bailees’ liability is designed specifically for property belonging to others while it’s in your custody.

If I’m not negligent, can a customer still claim?

They can claim, but whether you’re liable depends on the contract and the legal duty of care. Some contracts impose stricter responsibilities than common law.

Do I need goods in transit if I already have commercial vehicle insurance?

Usually, yes. Vehicle insurance covers the vehicle and third-party road liabilities. Goods in transit covers the cargo.

Are high-value items automatically covered?

Not always. Policies often have per-item or per-consignment limits. You may need to declare maximum values and buy higher limits.

What about damage caused by poor packaging?

Insurers may decline claims if packaging was inadequate or didn’t meet reasonable standards. Having documented packaging procedures helps.

Can I insure against consequential loss from damaged goods?

Some policies can be extended, but consequential loss is often restricted. Business interruption covers your own lost profit from insured events, not necessarily a client’s losses.

What should I do immediately after goods are damaged?

Mitigate the loss, document the damage, keep the goods for inspection, notify your insurer promptly, and don’t admit liability until advice is taken.

Final thoughts

Liability for damaged goods sits at the crossroads of contracts, operations and insurance. The best protection is usually a well-structured package: public and products liability, plus the right specialist cover such as goods in transit, customers’ goods/bailees’ liability, and stock insurance.

If you regularly handle valuable goods or work under tight delivery contracts, it’s worth reviewing your exposure and making sure your policy wording matches what you’ve agreed with customers.

Need help reviewing your cover? Speak to a specialist commercial broker who can align your contracts, limits and risk controls with the right insurance solution.