Is It Covered or Insured? Project Storage of Data Center Equipment

Sept. 6, 2023
Tony Cygan, Director of National and Strategic Accounts for MEI Rigging & Crating, outlines the different types of insurance policies you should consider when storing high-value, mission-critical equipment with a warehouse provider.
As supply chain disruption has forced a shift away from Just-In-Time (JIT) construction strategies, warehousing and storage of long-lead, ‘Owner Furnished – Contractor Installed’ (OFCI) and ‘Contractor Furnished – Contractor Installed’ (CFCI) equipment has become pivotal to the construction of data centers.
Finding a suitable warehouse provider is a challenge, and it is critical to vet the type of insurance policies that will be covering your equipment while under the care, custody, and control of another.

There are two types of insurances you will typically encounter when storing equipment - Warehouse Legal Liability (WLL) and Personal Property of Others (PPO). They are profoundly different, but in some cases, both may be available from your warehouse provider (warehouseman).

Warehouse Legal Liability (WLL)

The most common coverage type, WLL policies are only triggered by fault or negligence of the warehouseman. If there is a proven fault by the warehouseman, your goods will be covered by the policy, subject to terms and conditions. For occurrences that are not due to the negligence of the warehouseman, such as acts of God, your goods will probably not be protected by the policy. Furthermore, in the event of a claim, your coverage amount may be less than the full value of the equipment in storage. Often buried in the warehousing agreement is a clause stating that claims are limited to a low specified amount per pound or a “multiple of the monthly rent” for the stored item. 

WLL coverage was designed for the broader warehousing industry where it works reasonably well for general palletized, bulk or commodity items. When storing high-value, mission critical equipment associated with data centers, your property may be under-insured under WLL policies in both breadth of coverage and in value, even if the coverage is triggered.

Personal Property of Others (PPO)

PPO coverage is “all-risk insurance,” subject to policy terms and conditions – it covers your goods and does not need fault as a trigger for the coverage to apply. This increased level of protection is roughly 3x more expensive for the warehouseman to carry than WLL insurance, meaning it is less common in the industry and is typically procured with lower coverage limits than required for storing data center equipment.

Reviewing the warehousing agreement is also critical with PPO coverage. The policy may have exclusions (e.g., if the warehouse is in a flood zone, flood damage may be excluded). The stated coverage amount may apply to a collection of warehouses rather than the individual building where your equipment would be stored (meaning if losses exceed the coverage value, they will be shared across a broader pool and may further reduce the amount you recover). Finally, PPO policies can be written per occurrence or in aggregate, which drastically changes the way you should view whether the amount of coverage procured by the warehouseman is sufficient for your stored equipment.

Note that sometimes the warehouseman will have both WLL and PPO and will use the WLL if and when it is triggered; refraining from using the more expensive PPO unless the need arises. 

Other Coverage Types

‘First Party’ coverage can be obtained to cover stored equipment at full value regardless of what other property is being stored in the warehouse. This type of coverage will almost always result in additional charges since it requires a change or endorsement to the warehouseman’s existing policies.

Another avenue of supplemental coverage could be the Owners (or GC/EPC) Builders Risk policy for the project. These policies often (but not always) have an offsite storage component that might be used. Coverage limits for these policies are typically not high and may be inadequate for high value equipment. The coverage may also require that storage locations be specifically identified and referenced in the policy for the coverage to apply.

Mitigating Risk Beyond Insurance

Understanding the type(s) of insurance coverage offered by a warehouseman is crucial to getting comfortable with the risks associated with storing high-value, mission-critical equipment. However, mitigating risk goes beyond having adequate insurance. Warehouse providers specializing in data center equipment should provide you with imaging of visual external inspections and automated receipts upon delivery. If the equipment being stored will eventually be transported, rigged, and set on a project site, consider using a provider capable of performing all those services. Minimizing the number of times your equipment is handled by different parties, and having a single point of contact that is responsible for the care, custody, and control of your equipment from the moment it is received in storage to when it is set on the project site, helps eliminate third party risk and reduces the administrative burden of having to manage multiple vendors.

Tony Cygan is Director of National and Strategic Accounts for MEI Rigging & Crating. Contact MEI to learn more about their industrial storage and warehousing services and their turn-key rigging solutions for data denters.

About the Author

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