Limiting Liability in the Mobile-Storage Business: Legal Issues, Rental Agreements and Insurance
|Copyright 2014 by Virgo Publishing.|
|By: Scott Zucker|
|Posted on: 05/29/2012|
The mobile-storage business is a cross between self-storage and moving and storage, and like those businesses, it involves certain legal challenges. Although there are many legal aspects to operating a mobile-storage business, possibly the two most important to consider are having a proper rental agreement and the right insurance for the services provided.
The Rental Agreement
Mobile-storage operators have begun to shift their documents away from warehouse receipts and more toward rental agreements. These agreements address issues such as rental rates, additional fees, use limitations, operator lien rights and limited warranties. But one of the most important provisions in a mobile-storage lease concerns limiting the value of the property stored in a container.
Typically, these value limitations work the same in the mobile-storage business as they do in the moving and storage business. When renting a container, the customer must agree to a per-item value limit or an overall value limit for the entire container. Along with that limitation, the customer has the option of increasing the stated value limitation in exchange for paying a higher rental rate (i.e., if the operator has the risk of liability for a more valuable container, the customer is going to have to pay more for the service).
This isn’t insurance for the stored property, but a limitation on the potential liability of the operator in case he’s found responsible for loss or damage. The rational basis for the value limitation is this: If the mobile-storage company was potentially liable for the value of a container without any limitation, it would not be able to financially afford the risk of unlimited liability exposure for every container it moves and stores.
Instead, by creating a limit, the operator can afford to provide the portable-moving service to its customer at a reasonable cost. The operator then looks to its customer to ensure he has insurance coverage for the value of the items stored in the container in case there’s loss or damage to the property.
Standard value-limitation language for a mobile storage lease would include the following:
Limitation of Company’s Liability: Company’s liability for damages for loss or theft of or damage to the property covered by this Agreement is limited to 60 cents per pound per article or $1,200 for all property in the Container (“Declared Value”). Customer may on written request of Company, at the time of signing or within a reasonable time thereafter, increase the Declared Value of the property in the container to a maximum of $5,000. Company’s liability limit shall increase to such increased Declared Value upon payment of the increased storage charges associated with the increase declared value. In no event will Company be liable (whether in contract, warranty, tort or otherwise) for any third-party claim or for any indirect, incidental, special or consequential damage arising from any breach of express or implied warranty or from performance or nonperformance of any duty under this agreement or otherwise, or for any loss or theft of or damage to “prohibited property” or any damage to any property caused by shifting or movement of the property in the Container during normal transportation or shipping of the property to, from, or within the facility. Company will not be liable for any loss or theft of or damage to the property for which customer does not deliver a written claim to Company within sixty (60) days after customer first becomes aware thereof. No suit may be commenced against Company for any such loss, theft or damage more than one hundred twenty (120) days after customer first becomes aware thereof. Company will not provide insurance to customer. Company reserves the right to not take delivery of a container that it believes: (1) exceeds the maximum weight limit of 2,000 pounds; or (2) contains prohibited property.
Another important provision concerns waiving liability to the operator where he places the container upon delivery. Since the operator is going onto the customer’s property, he must be relieved of liability if the container damages the driveway or lawn where it’s placed. An example of that contract provisions is:
Delivery Clearance: Customer acknowledges that Company will normally place the Container on a driveway or other paved surface immediately accessible from a street fronting Customer's property. Such placement area shall have adequate width, depth and height clearance. Customer agrees not to hold Company liable for any damage caused to asphalt driveways caused by heat and the weight of the Container. In the event Customer requests Company to drive on Customer’s lawn or other non-paved area in order to place the Container in the area designated by Customer or to place the Container in an area lacking adequate clearance, Customer assumes full risk for damage and relieves Company from any responsibility for damage.
One of the other important provisions unique to mobile storage is the occasional need to “repossess” the container if the rent isn’t paid. An operator wants to avoid the risk of liability if he’s required to enter the customer’s property to recover the container. An example of that provision for the rental agreement is:
Right of Repossession: Upon default, Company reserves the right, without prior notice, to the repossession to the Container and all Property stored therein. Customer acknowledges by this Agreement its prior consent to entry by Company and its agents to the Customer’s property for the purpose of said repossession without the need for court order. Customer hereby waives claims for trespass and/or conversion arising from the repossession of the Container.
There are numerous other provisions that are part of a strong mobile-storage lease. Business operators should pay careful attention to their costs associated with multiple pickups and deliveries and the distance they're willing to travel to perform the service. If there are added costs, they need to be included in the lease agreement so they can be appropriately charged to the customer if incurred.
One of the essential requirements in a mobile-storage lease is clarifying what happens to the container itself. Is the container dropped at a location for use by a tenant until picked up at the end of the lease term? Is it dropped and picked up to be returned to a warehouse where access is limited, or dropped and picked up and returned to a self-storage facility? The type of service provided is essential in clarifying the potential liability the operator may have in running the business and, therefore, the type of insurance needed.
Unless the operator leaves the container at the customer’s home or business, the container is generally picked up from the customer's location, placed on a truck, and returned to a warehouse, where it is stored with all of the company's other containers. At some point, the operator puts the box back on the truck and returns it to the customer.
While the box is on the truck, the operator has arguably taken “care, custody and control” of the rented container. Inherent with that is bailment liability, such as if the box is damaged while being placed on the truck, during transit or when it’s being unloaded. Similarly, if the box is placed in the operator’s warehouse where the customer doesn’t have access, there is again care, custody and control or bailment.
So, does that “care, custody and control” matter under the law? The answer is yes. Due to the bailment obligation, the operator must carry specialized insurance that covers the stored property during its transportation and storage at the warehouse. The type of insurance is different from customers’ goods legal liability insurance, common in the self-storage industry. Since the operator is taking care, custody or control of the goods, he needs cargo coverage as well as property, casualty and liability coverage. Having the right insurance is key to protecting the operator from risks that are not otherwise considered.
Mobile-storage is a dynamic business that has revolutionized the service of moving and storage. Some issues relating to mobile storage have not been settled, but operators can avoid certain liabilities by starting with a strong agreement and having the right insurance. After that, it’s all about service to the customer.
Scott Zucker is a partner in the law firm of Weissmann & Zucker, P.C. in Atlanta, where he specializes in business litigation with an emphasis on real estate, landlord-tenant and construction law. He’s a frequent lecturer at self-storage events and the author of Legal Topics in Self-Storage: A Sourcebook for Owners and Managers. He’s also a partner in the Self-Storage Legal Network, a subscription-based legal service for self-storage owners and managers. He can be reached at 404.364.4626; e-mail firstname.lastname@example.org.