Insurance
Copyright 2014 by Virgo Publishing.
By: Scott Zucker
Posted on: 03/01/1998



 

By Scott Zucker

The following article is reprinted from the Mini-Storage Law Commentary, which is published by the law firm of Shapiro, Fussell, Wedge, Smotherman & Martin, Suite 1200, One Midtown Plaza, 1369 Peachtree St., Atlanta, GA 30309.

The words "fire" and "flood" in the same sentence as self-storage facility is the stuff that makes most self-storage owners cringe. Unfortunately, no matter how cautious a facility owner is, there always exists the possibility of either a natural occurrence or an unintentional act that can result in damage to a facility and its tenants' contents.

What is a facility owner to do when such a disaster happens, and what are the issues that the owner will have to face once such a crisis does occur?

Insurance

From a legal perspective, the self-storage owner must first look to the protections it has in place to repair its property and to defend itself against claims brought by its tenants for loss or damage to their property.

Hopefully, the facility will have insurance. Every facility should have in place some form of comprehensive business and liability policy for its facility that will cover assorted weather risks such as hurricanes, tornadoes, wind and hail. The policy should also cover the facility in case of fire and, where flooding is a possibility, a facility should consider obtaining specialized flood insurance.

The insurance policy limits should be sufficient to cover the facility to the extent of a total loss and, therefore, should be calculated based upon the anticipated cost of replacing the existing facility. The facility should also purchase coverage for the loss of use of the facility during the rebuilding process, which is calculated to cover what the lost rental income would have been for the time period the building cannot be used. Some policies allow facility owners to extend that lost income coverage to cover an additional period of time after the facility is reopened, taking into account the time necessary to re-rent the storage units.

If the damage to the facility is only partial, the same replacement and lost income coverage would apply. Additionally, certain policies may cover the costs associated with operating only a portion of the facility while the other portion is being rebuilt and may include coverage for unusual operating expenses caused by partial use, such as additional security.

What about your tenants claims? Certainly, if the disaster that occurs is one that could not be controlled by the facility, most leases and rental agreements will protect the facility from tenant claims arising from the loss of their property. Self-storage leases should contain specific language that the facility will not be held responsible for the "loss or damage" to their tenants' stored property. The lease should provide that the tenants' property is to be stored "at their own risk" and that the facility does not take "care, custody or control" of the property stored.

However, facility owners should be aware that certain states will not enforce such exculpatory clauses contained in self-storage leases based on the position that such clauses are against public policy and unfair to tenants. Due to the dispute over the enforceability of these exculpatory leases, it is therefore even more important for the facility to require, as part of its lease or rental agreement, that tenants obtain their own insurance for stored property to protect their interests in the property if something happens.

Unfortunately, sometimes when a tenant's property is lost or damaged, regardless of the cause and even if the proper lease protections are in place, a tenant will sue the facility to recover for the loss claiming that the facility was negligent in allowing the loss to occur. This is where customer goods' legal liability coverage comes in. This specialized self-storage insurance protects a facility from tenant claims arising from loss or damage to their property. This insurance will defend a facility against the lawsuits that may arise from the claims and will cover the court costs and payments to the tenant if such payments are warranted or awarded by the court.

Self-storage facilities should be aware of the fact that standardized comprehensive and business liability policies will likely not cover tenant loss and damage claims. Therefore, this type of specialized coverage is usually needed for this type of unique protection.

With respect to your insurance coverage, there are certain things you must do that will probably be required under your insurance policy in order to be covered when a facility loss occurs:

1) Contact your insurance company. Many insurance companies will not be obligated to cover your claims if they are not given reasonable notice of the occurrence and have a chance to investigate it. Contact your claims agent by phone and then follow up in writing.

2) Mitigate your damages. After a loss occurs, it is incumbent upon the facility owner to protect the property (and the contents) from further damage. Therefore, cover or board up areas that remain open to the elements and rope off damaged areas to protect against theft, even go so far as to hire temporary security if necessary.

3) Prepare a record. At the time the loss occurs, it is important to fill out an incident report and additionally take any photographs or videotape footage that would document the loss and your efforts to mitigate further damages.

Dealing With Tenants

It is crucial once a situation occurs at your facility resulting in damage to your tenants' property that the tenants affected be notified immediately. Notice should be made both written and by phone to the tenant's last known address. The notice should explain what occurred at the facility (not necessarily the cause), and that the tenant is asked to come to the facility to claim his goods. Access to a tenant's goods usually can be given unless the damage is such that it would be dangerous for the tenant to enter the facility property. The written notice should recommend that the tenant notify his insurance company once his loss is determined. It is important to communicate with your tenants as much as possible, but at no time claim responsibility or agree to pay for a tenant's loss. If the tenants do submit claims, the facility should pass those claims along to their insurance company.

Handling the Media

The public-relations nightmare that might result from a disaster may actually be the worst part of dealing with such an occurrence. However, it is often better to first prepare a statement for release to the media rather than shooting from the hip in response to reporters' questions. In a situation where the cause of the damage is unknown and claims will be made against the facility, a prepared statement is essential to avoid any comments made that later could be used as admission against the facility. Although cooperation with the media is important, be aware of the circumstances surrounding the incident. Do not invite media attention to your facility unless the story to be told is of a positive nature. Be careful not to sensationalize incidents that may occur at your facility. Remember, it is not necessarily true that any publicity is good publicity.

Certainly, any unusual occurrence at your facility can be troubling, but a disaster is much worse. Remember the protections afforded you by our role with the media. The only approach you can take when disaster strikes is to try to make the best out of a bad situation.

Scott I. Zucker is a partner in the Atlanta law firm of Shapiro Fussell Wedge Smotherman & Martin, LLP. A frequent contributor and Inside Self-Storage speaker, Mr. Zucker specializes in self-storage law and construction litigation. He may be reached at 1360 Peachtree St., Suite 1200, Atlanta, GA 30309; phone (404) 870-2200; e-mail zucklaw@aol.com.

Editor's Note: This article is to provide general information only and is not intended to provide legal advice.