Industry Specific Policies Safeguard Owners Against Mishaps, Litigation, And Disasters
A manager at a self-storage facility noticed an odd wobble in a roll-up door as she cleaned out a unit after a tenant had vacated the space. But she already had a new tenant lined up to rent the unit and maintenance would have to wait for another time. Later that month, the unit’s new tenant showed up at her office with injuries from the roll-up door that fell on the customer.
Mishaps like this occur daily at storage facilities across North America. Whether they are slip-and-fall incidents, malfunctioning gates, or devastating fires, some accidents are unavoidable—others are preventable.
Did a product defect cause the gate to fail? Would regular maintenance have prevented the door from malfunctioning? Did the manager allow a tenant to store flammable materials that caused a fire?
The owner of a self-storage facility could be held legally liable for an accident that injures a tenant or visitor or damages their property. If the owner is found to be negligent because the accident could have been prevented, the results can be very costly.
That’s why responsible storage owners carry a variety of insurance coverage to protect against claims that can severely damage a business. Storage owners also have several specialty policies they can purchase to protect against unique circumstances found at storage businesses.
Negligent Actions
Business owners carry general liability insurance to protect against many of the claims filed against self-storage operations. When a customer or visitor is injured on a storage site, most business owner’s policies include medical coverage to settle accident claims, no matter who is at fault. A business liability policy usually covers personal injury, certain auto liability, and medical expenses up to $10,000.
While some customers are grateful to have their medical costs covered, others may go well beyond a simple resolution and seek legal remedies.
“You may have a liability claim which is where the claimant is indicating there was negligence on the part of our insured that caused the injury,” says Don Sedlacek, vice president of claims for Phoenix-based MiniCo Insurance Agency. “In those cases, a claim of liability for pain and suffering outside of the actual medical cost will also become a part of the claim.”
In the event of a claim such as this, the insurance company would investigate the incident to determine if the product may have been defective, or if a lack of maintenance was at issue, or if the injured party played a part in causing the mishap.
Failure to take remedial action to repair faulty equipment or fixtures can come back to haunt a facility owner. “Lack of maintenance and repair issues are probably one of biggest problems of liability coverage,” says Jim Reed, an agent with Clark Garvey Insurance Services in Costa Mesa, Calif.
MiniCo offers storage operators a policy that provides replacement cost coverage for buildings and structures, including fences, building glass, signs, walks and roadways, and buildings under construction. Business personal property including computer equipment is also covered. The policy also pays the owner’s legal fees.
Self-Storage Specialty Coverage
Some insurance companies have designed specialty policies to protect against unique circumstances found in the self-storage industry. These policies cover self-storage operators for negligence, wrongful sales, damage to customers’ property, and legal costs.
Companies that specialize in self-storage insurance, such as MiniCo, offer customer goods legal liability to provide coverage against loss or damage to customers’ personal property for which the self-storage business may be legally liable. The policy also pays for defense costs against allegations.
MiniCo’s customer goods legal liability includes defense against allegations. Limits are available from $25,000 to $1 million.
A tenant could sue the business for an injury or the loss of property. The customer could receive a substantial payment for the claim if the owner is found to be negligent for failing to repair a known issue with the roof, roll-up door, or other equipment.
“The greatest concern with regard to a damage claim is that the operator has been negligent in the maintenance of his property,” says Scott Zucker, an attorney with Atlanta-based Weissmann Zucker Euster Morochnik P.C. “I see more cases that are the result of a foreseeable risk. If the operator had this problem in the past and didn’t do anything to fix it, it can put more of a negligence burden on the operator.”
For example, if a dead tree were to fall on a storage unit during a storm and damage a tenant’s contents, the owner could be held liable because it could be considered a foreseeable risk that the operator did nothing to prevent.
“When you have a tree that either has dead limbs or had a disease and was not removed, the insured could be found to be legally liable for not taking the proper actions prior to the loss occurring,” Sedlacek says.
Prevention is the best method to avoid claims and litigation. Regular maintenance combined with a checklist of procedures can help prevent most common mishaps.
“The minute you make something a routine, it becomes very valuable,” Reed says. “If a guy moves out, you have a checklist and you check that unit before you release it.”
Lien Sale Litigation
Most self-storage operators view a lien sale as an option of last resort. Selling the contents of a delinquent tenant’s storage space can potentially trigger costly claims and lawsuits if not handled properly. Facility owners can purchase sale and disposal liability coverage to protect against legal actions arising from illegal or improper auctions.
Self-storage lien sales are governed by individual state laws. Most claims and lawsuits related to lien sales stem from the operator’s failure to comply with the law. Even if a storage operator follows the letter of the state law, legal action can still result.
“The auction is not our largest exposure; it’s the handling leading up to the auction,” Sedlacek says. “The majority of the time it has to do with the storage facility not following the laws of the state.”
One way to head off legal action is to ensure that your lien sale process is in compliance with the law. The Self Storage Association has compiled a list of the self-storage lien laws for most states and the District of Columbia that are available to member operators.
Lien laws across the U.S. change annually and it’s important to keep up to date on alterations and to revise your rental agreement accordingly. Additionally, specific contract wording that limits the value of goods stored has helped to reduce significant judgments against storage owners, according to Zucker.
“You want to make sure that whatever procedure you have in place you follow that same procedure for every individual,” advises Chris Nelson, MiniCo’s new business team supervisor. “You don’t want to set a precedent for one and not others because you didn’t follow your own procedures. At the very minimum, follow the state guidelines and then you might want to go beyond that.”
Court cases reveal that facility managers and employees have made serious errors leading up to a lien sale. In some cases, the facility staff listed the wrong unit numbers on a lien sale or failed to notify delinquent tenants properly.
Facility owners can also have legal exposure for online auctions that are growing in popularity, although this form of lien sale has shown a relatively clean track record to date.
One way online auctions avoid risk is that bidders don’t have to physically come onto the property, where they could slip and fall or suffer another kind of injury. Another apparent advantage of the online auction is financial.
“There has been no litigation yet concerning the use of online sales versus live sales,” Zucker says. “I think the reason you’re not seeing any pushback from online sales is because I’m seeing greater revenue derived from online sales. The tenant gets the benefit of excess proceeds from the sales and there’s a greater audience of bidders so the sale becomes more commercially reasonable because of a larger audience of online buyers.”
A sale and disposal policy provides coverage for negligent acts arising from the lockout, sale, removal, or disposal of customers’ property when reclaiming rented space for which rental or other charges are delinquent or unpaid. Sale and disposal liability includes legal defense, which is especially important since owners can be sued even if they conducted the auction properly. Limits of up to $1 million are available from MiniCo.
Protecting Tenant Contents
Another way tenants can suffer a loss is when a fire or other disaster damages or destroys storage buildings. A fire destroyed 118 storage units at a Waterbury, Conn., self-storage facility last year. Dozens of tenants, including small business owners, lost thousands of dollars of contents.
Some homeowner’s and renter’s insurance policies offer coverage for goods stored away from the insured’s residence. But a survey commissioned by the Insurance Information Institute revealed that only 37 percent of U.S. apartment dwellers carry this kind of insurance.
Approximately half of self-storage facilities in the U.S. now offer insurance to tenants to protect their property against a devastating fire, natural disaster, or crime. More and more facilities require proof of insurance for contents before allowing a customer to rent a space.
“Tenant insurance a critical component of any self-storage business,” says Keith McConnell, vice president of business development for MiniCo. “It helps reduce liability, can generate additional revenue, and it can improve their customer service.”
MiniCo’s TenantOne Direct and Pay-With-Rent policies offer zero deductible, replacement cost coverage, and insurance for vehicles parked inside a unit. Operators can earn commissions or fees from insurance companies by offering this coverage to their customers.
MiniCo’s tenant insurance programs offer self-storage customers affordable, short-term insurance coverage for items stored in a rented self-storage space or mobile container. In the event of a loss, tenants who have insurance coverage are less likely to make a claim for damages against the self-storage business.
Income Protection
When a fire or other disaster destroys storage buildings, owners can be made whole again with insurance. However, many self-storage owners often overlook the effect on their income during the time it takes to reconstruct. Sometimes this loss of income has a more devastating effect on a business than the damaged buildings.
“Statistics show most businesses go under not because of a lack of building insurance but because of income insurance—they don’t have enough of that coverage,” Nelson notes. “The time it takes to rebuild, the lost customers, and the bills that arise, that’s usually what puts a company under after a fire or tornado.”
Business income or business interruption coverage protects a storage operation’s income in the event of a loss requiring reconstruction. This coverage can be a significant factor for the survival of a business following a catastrophic event.
A typical policy provides regular business income and extra expenses incurred for 12 to 15 months following reconstruction while storage spaces are being re-rented. MiniCo offers the option to extend the coverage additional months.
Data Compromise Coverage
Data breaches of sensitive credit card and debit card information have affected millions of customers at major retailers such as Target, Home Depot, SuperValu, Kmart, and Staples.
Cyber crime is one of the fastest-growing threats to business operations and one that can result in expensive claims and lawsuits. Self-storage businesses are not immune to cyber hacking, especially with more customers paying online. Self-storage operations store sensitive customer data along with credit and debit card information.
Claims and lawsuits may result from the exposure or compromise of customers’ personal or financial information.
“If you allow a data breech to happen on your property, whether it be from someone hacking into your system or an employee stealing information, you’re going to have liability,” Zucker says. “If facilities don’t use locked filing cabinets, if they don’t have firewalls, if they don’t use PCI-compliant software for their merchant services and something happens, then there will be direct liability to the operator because of their failure to create a safe environment for that data.”
To address this exposure, some insurance companies now offer data compromise coverage for business owners. MiniCo Insurance Agency’s data compromise coverage provides up to $50,000 in coverage to provide a variety of assistance to policyholders for a wide range of data breaches such as electronic theft or hacking. The coverage includes legal services, forensic information technology review services, notification to and services for affected individuals, credit report and monitoring, and identity restoration case management.
In most cases, data compromise coverage may be added to an existing commercial insurance policy for a relatively affordable premium.
Hail Damage
The unusual frequency and severity of wind and hailstorms in recent years has caused record losses for residential and commercial properties. The self-storage industry is feeling the effects as well. With a high concentration of self-storage facilities located in the path of destructive wind, hail, and tornadoes, insurance property claims for roof damage have soared in the past five years.
In areas hit hard by hailstorms, some insurance companies have stopped writing policies to cover hail damage. Other companies have become creative and began offering endorsements that provide limited coverage for business owners.
“In these challenging areas insurance companies, as opposed to completely removing themselves from that market, have found creative ways to limit their coverage but still make insurance available to facilities,” says McConnell.
MiniCo has been including a cosmetic loss limitation endorsement on risks in hail-prone areas that is designed to mitigate losses that do not impact the integrity of the roof. This endorsement is currently filed for use in Arkansas, Colorado, Kansas, Missouri, Nebraska, Oklahoma, and Texas.
The endorsement includes coverage for cosmetic hail damage to roll-up doors, siding, downspouts, and gutters. Only cosmetic damage to metal roofing is excluded. It provides coverage for hail damage to metal roofing only when the damage results in the failure of the metal roof covering to keep out the elements.
This is an ideal solution for self-storage locations that are located in hail-prone areas and are having difficulty acquiring property coverage specifically because of the hail peril.
“In areas where there are a lot of tornados and hail, many companies haven’t been able to make a profit in those areas; therefore, they’ve either pulled out or raised rates,” says Nelson. “In our case, we’ve created endorsements to remain in those states and keep premiums affordable.”
Floods, fire, windstorms, and other natural disasters, not to mention crime, can strike any storage facility at any time. While most owner/operators carry adequate insurance coverage, it’s impossible to insure against every possible calamity. An independent insurance agent who specializes in self-storage is an excellent resource to help identify potential exposures and suggest insurance coverage for your business.
Be prepared. Be careful. Get protected. A comprehensive insurance policy is an effective approach in reducing risk and protecting your business should disaster ever strike.
David Lucas is a freelance writer based in Phoenix, Arizona. He is a frequent contributor to all of MiniCo’s publications.