How does insurance work in a third party warehousing and fulfillment situation?

In order to understand the way that insurance works in the warehousing and fulfillment business, we find the following analogy of a dry cleaner to be an effective way of describing the situation.

If you go to a dry cleaner, you are paying them to do a service, clean the clothes. During the process, you retain ownership of the goods. Now lets say you take a $2 t-shirt and a $2,000 suit to get cleaned.

Scenario #1: The dry cleaner destroys the clothes. He is covered up to a certain amount for his own negligence. The remaining losses are covered on your homeowners policy, and you must file a claim with your agency to receive reimbursement for the loss.

Scenario #2: The drycleaner is completely destroyed by Godzilla along with your clothes. The losses are all covered under your homeowner policy.

It is the same situation with warehouseman's legal liability insurance and the insurance that a corporation would normally have on their goods. They retain ownership of the goods throughout the whole process, and therefore the goods are covered under their policy. If we should happen to be negligent and destroy their goods, our policy covers up to a million dollars per occurrence. If Godzilla comes and destroys the warehouse along with their goods, their insurance covers the situation along with ours.