Whose Components Burned? Declaring Customer-Owned Stock at Indian Contract Manufacturers

On 4 August 2026, Amber Enterprises India Ltd told the stock exchanges that a fire had occurred at the Greater Noida factory of its material subsidiary, IL JIN Electronics (India) Private Limited. The disclosure said the incident caused temporary disruption to operations in the affected area, that assets are adequately insured, and that a formal insurance claim process had been initiated. The same day, PTI reported that two firefighters were killed and three injured while responding to a fire at an electronic chip manufacturing unit in the Ecotech-3 industrial area of Greater Noida. Public reporting does not establish whether that was the same incident, and this post does not treat it as such, but both are a reminder that these are not paper events.

For investors, "assets are adequately insured" closes the matter. For anyone who has settled a fire claim at a contract manufacturer, it opens one: whose assets? An electronics manufacturing services (EMS) unit assembling boards and appliances for OEM customers holds three kinds of property on the same shop floor. Its own plant, machinery and consumables. Work in progress that mixes its labour with someone else's components. And free-issue material, the components, sub-assemblies, tooling and packaging that the OEM customer bought, owns throughout, and merely placed in the EMS unit's custody for conversion.

At many EMS units, job-workers and processors, the customer-owned share is the majority of the value at risk on any given day. A standard fire policy, left on its default settings, insures the insured's own property. Whether it also answers for the customer's components depends on a single line in the schedule that is easy to omit and expensive to discover missing after a loss.

Indian fire wordings inherited a rule from the erstwhile All India Fire Tariff that survives in the Standard Fire and Special Perils Policy and in the insurer-filed products that replaced it: stock and goods held in trust or on commission are covered only when they are specifically declared and insured as such. Goods in the insured's custody but owned by others do not slide silently into the definition of "stocks". If the schedule describes the insured property as "stock of raw materials and finished goods" and says nothing more, the insurer's default position after a fire is that customer-owned components fall outside the cover.

The legal foundation is not the obstacle. A bailee has insurable interest in goods entrusted to it and can insure them for their full value, holding any recovery beyond its own interest for the owner. Indian insurers will happily write customer-owned stock on the EMS unit's own policy. But the policy must say so, in words: a declaration such as "stocks of components, sub-assemblies and finished goods held in trust or on commission, for which the insured is responsible", with its own sum insured.

The same logic applies beyond electronics: garment job-workers holding customers' fabric, auto-component processors holding OEM castings, and toll manufacturers in pharma holding a principal's API all sit on the identical clause.

Before anything can be declared, someone has to map it. A workable ownership census at a contract manufacturer covers five buckets:

1. Free-issue components and materials. Purchased and owned by the OEM, issued to the EMS unit against delivery challans, never invoiced to it. Often the single largest value at risk in stores and on lines.
2. Consignment and buffer stock. Supplier-owned or customer-owned hubs held at or near the factory, where title passes only on consumption. Physically indistinguishable from own stock without records.
3. Work in progress. A populated board is customer-owned components plus the EMS unit's solder, adhesives and labour. The manufacturing services agreement should say who bears risk of loss on WIP; the policy declaration should mirror that answer.
4. Customer tooling, jigs, moulds and test fixtures. Owned by the OEM, often high value, and routinely forgotten because they are capital items rather than stock. They need their own line in the declaration.
5. Finished goods awaiting dispatch and RMA or repair stock. Title to finished units frequently rests with the customer before dispatch under buy-sell or pure job-work models; returned units under repair are customer property throughout.

The commercial model changes the split. Under a pure job-work or tolling arrangement almost all material is the principal's. Under a buy-sell EMS model the contract manufacturer owns components it procured itself, but customers still free-issue the critical or allocated parts, chipsets, compressors, displays, that they buy on their own paper. Most real factories run both models at once, for different customers, which is why a single blended "stock" figure in a fire schedule so often misdescribes what is actually on the floor.

The declaration itself is mechanical once the mapping exists. Customer-owned material should appear in the schedule as a separately identified item, described as goods held in trust or on commission for which the insured is responsible, with a sum insured set on a defensible valuation basis. Three practical choices follow.

Valuation basis. For components, the natural measure is the owner's landed replacement cost, what it would cost the OEM to buy and deliver the material again, not the conversion charge the EMS unit earns on it. For customer tooling, reinstatement value of the tool, which can exceed its book value many times over. Agree the basis in the policy rather than litigating it with the surveyor afterwards.

Fluctuation. Free-issue holdings swing with production schedules. A fixed sum insured set at the annual average will be inadequate in peak season and trigger the average clause on a partial loss. A floating policy across the factory and any external warehouses, or a declaration-basis stock cover with monthly declarations, tracks the real exposure. Whichever structure is used, the peak value, not the average, sets the limit.

Whose policy. Either party can insure the stock, but only one should pay the material-damage claim. The clean structures are: the EMS unit declares customer stock on its policy with the customer's interest noted, or the OEM insures its own material wherever it sits and the EMS unit carries liability cover for its negligence. What fails is the middle path, where each side assumes the other has it covered. The contract should name the insuring party, require a certificate of insurance each renewal, and state whether the OEM's insurer waives subrogation against the contract manufacturer. Without a waiver, the OEM's property insurer pays its policyholder and then sues the EMS unit as bailee, which puts the loss straight back on the factory that thought it was insured.

A declared sum insured is necessary but not sufficient. After a serious fire the loss adjuster will ask the EMS unit to prove what customer stock was on site, who owned it, and what it was worth, on the day the records themselves may have burned.

Indian job-work compliance, done properly, generates most of this evidence. Goods sent for job work move under delivery challans, and principals report material sent to and received back from job-workers on Form GST ITC-04 under Section 143 of the CGST Act, 2017. Those filings, sitting safely on the GST portal and in the principal's records, are third-party corroboration of what was in the job-worker's custody. To that base, add:

• Perpetual inventory records for customer-owned stock, segregated by owner, backed up off site daily.
• Periodic physical counts reconciled with each OEM, signed both sides. A quarterly signed reconciliation is worth more to a claim than any internal report.
• Goods-receipt notes and consumption records that tie free-issue material into specific work orders, so WIP value can be rebuilt from documents.
• A tooling register with owner, asset tag, location and replacement value for every customer jig, mould and fixture.

For the OEM, the same records answer the mirror-image question its own insurer will ask under a contingent extension: how much of our material was at the supplier, and what did losing it cost us?

A fire at a contract manufacturer hits the OEM twice: once through the material that burned, and again through the production that does not happen while the line is down. The first loss is property and is handled by the declaration structures above. The second is business interruption at premises the OEM does not own, and the standard BI cover on the OEM's own policy does not respond to it, because there is no damage at the OEM's insured premises.

The instrument is a suppliers' premises extension, contingent business interruption, on the OEM's policy. The wording decisions that matter: whether the EMS unit is a named supplier with a meaningful limit or falls into a small blanket sub-limit for unnamed suppliers; whether the extension covers tier-1 custody only or reaches the supplier's own suppliers; and whether the trigger requires damage of a type that would have been insured under the OEM's own policy. A single-source assembler of a finished product is a named-supplier case with a limit sized to months of gross profit, not a line item in a blanket extension. Our note on contingent business interruption claims after a supplier loss works through how these claims are actually adjusted.

Contractually, the manufacturing services agreement should carry the risk architecture rather than leaving it to inference: a risk-of-loss clause stating who bears loss of free-issue material, WIP and finished goods at each stage; an obligation on the contract manufacturer to insure declared customer property and evidence it annually; agreed valuation for customer material and tooling; mutual waivers of subrogation where the parties intend insurance to be the final resting place of the loss; and business-continuity obligations, alternate-site plans and buffer-stock commitments that reduce the interruption itself. An OEM that free-issues allocated semiconductors with long replacement lead times should also recognise that the real exposure may be the lead time, not the invoice value, which argues for both higher contingent BI limits and buffer stock held away from the supplier's site.

Pulling the threads together, a contract manufacturer holding material customer stock has three coverage layers to get right, and they answer different questions.

First, the property declaration: customer-owned stock and tooling declared as goods held in trust on the unit's own fire policy or Industrial All Risks programme, at full value, on a floating or declaration basis that tracks peaks. Larger EMS units buying IAR should confirm the trust-goods declaration carries into the IAR schedule when the programme migrates from a standard fire product; the comparison in Industrial All Risks versus the standard fire policy sets out where the wordings diverge.

Second, legal liability cover. A first-party declaration pays regardless of fault, which is what preserves the customer relationship. But where the unit chooses not to insure customer property directly, or holds goods outside the declared locations, a bailee's legal liability cover responds to its negligence exposure, on the same logic as the warehouse keeper's legal liability policy in the logistics sector. Many units need a modest liability layer even with a full declaration, for goods in transit between the OEM and the factory and for custody scenarios the property policy excludes.

Third, the unit's own BI, with an indemnity period long enough to cover customer requalification, because an OEM that re-sources during a nine-month rebuild may never come back.

The recurring failure mode is not a missing product, it is a schedule that no one read against the shop floor. The IL JIN disclosure will be tested in adjustment like every other: line by line, against what the policy schedule says and what the records prove. Sarvada makes the wording half of that work searchable. Brokers and risk managers can query insurer policy wordings for the exact goods-held-in-trust, floating-stock, subrogation-waiver and suppliers-extension language that decides these claims, and compare insurers clause by clause. If you place or underwrite contract-manufacturing risk, request access to Sarvada.