Insurance Best Practices for Auctions and Consigned Items – Affiliate Knowledge Base

This section provides K-BID affiliates with comprehensive guidance on managing insurance for consigned items, onsite auctions, and liquidation events. The goal is to mitigate risks, clarify responsibilities, and ensure affiliates are protected from liability while maintaining strong relationships with sellers.

K-BID does not have or enforce insurance requirements. As independent business owners, the risk of conducting auctions falls on you. That said, we want to ensure our affiliate network is educated on the topic and can take the necessary steps to reduce their risk.

Disclaimer

This training provides general advice based on K-BID's previous experience. It has NOT been reviewed or consulted with legal or insurance professionals. We strongly advise affiliates to consult with their attorney, accountant, and insurance agent for guidance specific to their circumstances.

Why Insurance Is Critical for Affiliates

Proper coverage is an essential risk management tactic for all businesses. Ensuring that you are covered for unforeseen circumstances provides peace of mind and protects your operations.

Risk Management: Protect against liability for loss, theft, or damage to consigned goods and injuries during auctions.
Clarity of Responsibility: Clearly defining and documenting seller and affiliate responsibilities in agreements helps avoid disputes, confusion, and legal issues.
Cost Control: Implement strategies to minimize insurance expenses while maintaining adequate coverage.

There are many types of insurance; however, the most common types necessary in the online auction space are general liability coverage and consignment coverage (typically known as bailee’s insurance).

Training Structure

This training is divided into two key sections, each providing insights and actionable steps:

Insurance for Consigned Items at Your Location
Insurance for Onsite Liquidations

Section 1: Insurance for Consigned Items at Your Location

Seller’s Responsibility for Insurance

Contract Requirement:
- Require sellers to maintain insurance for their items until the sale is completed.
  Example Clause:
"The seller is required to maintain insurance coverage for all consigned items until the sale is completed and ownership is transferred to the buyer."
Encouraging Seller Insurance Options:
- Rider to Existing Policy: Sellers can add a rider to their homeowner’s or business insurance policy to cover specific consigned items or auctions.
- Standalone Short-Term Policies: Sellers may purchase a short-term policy for high-value or sensitive items.
Document Declined Insurance:
- If a seller chooses not to insure their items, document this decision in writing within the seller agreement.
  Example Clause:
"The seller acknowledges and accepts full responsibility for insuring items during the consignment period and releases [Affiliate Name] from liability for loss, damage, or theft."

Affiliate’s Role in Managing Risk

While sellers should hold primary insurance, affiliates may consider their own insurance for added protection:

Bailee’s Insurance: Covers consigned goods in the affiliate’s custody.
General Liability Insurance: Protects against claims for bodily injury or property damage caused by operations or conditions under the affiliate’s control.

Section 2: Insurance for Onsite Liquidations

Adding Affiliates as Additional Insured

Why It’s Important:
- Being listed as an additional insured on the seller's policy protects the affiliate in case of claims related to the auction site (e.g., slip-and-fall accidents).
How to Add as an Additional Insured:
- The seller contacts their insurance provider to add the affiliate as an additional insured for the auction's duration.
- Request a Certificate of Insurance (COI) as proof.

Best Practices for Onsite Liquidations

Require Additional Insured Status:
Include this requirement in your auction agreement with the seller.
Example Clause:

"The seller agrees to add [Affiliate Name] as an additional insured on their general liability insurance policy for the duration of the auction and related activities."
Inspect the Site:
- Conduct a walkthrough to identify and mitigate hazards (e.g., wet floors, uneven surfaces).
- Document the site’s condition before and after the event.
Communicate Responsibilities:
- Clearly outline who is responsible for maintaining safety during the auction (e.g., signage, hazard mitigation).

Important Note

Liability insurance does not cover injuries to your employees. Workers’ compensation insurance is required for employee injuries. Misclassifying employees as 1099 contractors can lead to legal issues. Consult with an attorney to ensure proper classification and coverage.

Section 3: Liability Insurance for Onsite Accidents

Does an Affiliate’s Liability Insurance Cover Slip-and-Fall Accidents?

General Liability Insurance:
- Most policies cover bodily injury claims, including slip-and-fall accidents, provided the affiliate is responsible for the event or premises.
- Verify your policy includes "off-premises" coverage for events held at seller locations.

What Could Limit Coverage?

Negligence: Claims involving affiliate negligence (e.g., failing to address known hazards) may depend on policy specifics.
Exclusions: Some policies exclude certain activities or events unless explicitly covered.
Shared Responsibility: If the seller also controls the premises, their insurance may be involved.

Best Practices for Protecting Against Liability

Verify Your Policy:
- Confirm your general liability insurance includes off-premises coverage.
- Check for adequate limits on bodily injury coverage.
Request Additional Insured Status:
- Being listed on the seller’s policy reduces risk and ensures coverage.
Mitigate Hazards:
- Ensure safe conditions through proper signage, clear pathways, and regular site inspections.
Document the Incident:
- In the event of an accident, document the scene, gather witness statements, and notify your insurer immediately.

Section 4: Using Insurance Riders as an Affiliate

When Should Affiliates Add a Rider?

High-Value Auctions: Large consignments such as vehicles, heavy equipment, or rare collectibles.
Sensitive Situations: If a seller cannot insure their items, affiliates can add a rider and charge the seller for the cost.

Steps to Add a Rider

Contact your insurance provider and request a rider for specific auctions or consigned items.
Provide details such as:
- Auction dates and location.
- Estimated value and type of items.
Confirm coverage for risks such as theft, damage, or liability.

Cost Considerations

Riders are priced based on item value, risk level, and duration.
Pass these costs to sellers as a line item in their settlement.

Section 5: Handling Common Scenarios

Seller Declines Insurance:
- Document the decision in writing and explain potential risks to the seller.
High-Value Items Without Seller Insurance:
- Add a rider to your policy, charge the seller for the cost, and document the arrangement.
Incident at an Onsite Auction:
- File a claim using the seller’s insurance (if you’re an additional insured) or your general liability policy.
- Coordinate with all involved insurers to manage the claim efficiently.

Section 6: Action Items for Affiliates

Review Your Policies:
- Ensure your business insurance covers off-premises events and includes adequate liability protection.
Update Seller Agreements:
- Include clauses requiring sellers to maintain insurance and add you as an additional insured when applicable.
Communicate Clearly:
- Educate sellers on their insurance options and provide recommendations for reputable providers.
Conduct Regular Site Inspections:
- Proactively mitigate hazards at auction locations to reduce liability.
Consult Your Experts:
- Regularly discuss your operations with an attorney, accountant, and insurance agent to ensure you’re adequately protected.

Key Takeaways

Affiliates should require sellers to maintain primary insurance for consigned items and consider adding riders for special cases.
Adding affiliates as additional insureds on seller policies is crucial for onsite auctions.
Regular communication, documentation, and proactive risk management are essential to minimize liability and ensure seamless operations.