No Benefit to Bailee Provision

Definition - What does No Benefit to Bailee Provision mean?

No benefit to bailee is a provision or condition that is commonly found in inland marine insurance policies. It is sometimes also included in other types of polices, including car insurance.

The provision is intended to prevent a bailee from recovering any portion of insurance proceeds in the event that, for example, property under the control of a bailee is damaged, lost, or stolen.

Insuranceopedia explains No Benefit to Bailee Provision

The no benefit to bailee provision is intended to provide insurance compensation to the victim of the loss, rather than paying it to the bailee.

Suppose, for instance, that you are moving from New York to California. Since you plan on flying, you hire a company to move your car for you. If the car is stolen en route, the no benefit to bailee provision ensures that proceeds from the insurance will go to you, not the company you hired to move the car (the bailee).

Likewise, if you left your car at the garage while it underwent or awaited repairs and the garage burns to the ground while your car is in it, you would receive the insurance payment, not the mechanic (who acts as the bailee in this scenario).

Legal Precedent

The case of Travelers Indemnity Co. v. Auto Driveaway Co. (1979) sets a legal precedent for this concept.

In this case, a car being transported from one state to another by a company (Auto Driveaway) was stolen by the company’s driver and never found. The owner of the car (Kraemer) had auto insurance, and the insurance company (Travelers) included a no benefit to bailee provision in the contract along with a subrogation clause that allowed them to sue Driveaway after paying Kraemer for the loss.

The trouble was, the agreement Driveaway signed with Kraemer gave Driveaway the benefit of any insurance policy held by Kraemer, meaning that the insurer would bear the loss and Driveaway would not be held liable. In essence, this meant that Driveaway would be covered under Kraemer's policy.

The Wisconsin Court of Appeals held that Driveaway was responsible for the loss and that Travelers could recover from Driveaway the sum it had paid to Kraemer.

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