Returned a router bit set and got back a bag of rust

We loaned out our nice 24-piece router bit set back in March and when it came back last weekend, the case was full of rust and two bits were snapped clean off. The borrower said it worked fine when they dropped it, but our check-in guy got a handful of orange dust instead of a usable tool. We had to send it to a sharpening shop and still paid $45 to replace the broken bits, which came straight out of our repair fund. This is the second time in six months that we've gotten gear back in worse shape than when it left, and our lending agreement just says 'return in good condition' which is way too vague. What do you all put in your contracts to cover damage like this, and who eats the cost when it happens?

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