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
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.
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
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,”
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
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
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
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
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.
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
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.