Sale-and-Disposal Legal-Liability Coverage

By David Wilhite

Sale-and-disposal legal-liability is an important coverage specific to the self-storage industry. It provides protection against conversion: the act of wrongfully taking, selling, using or destroying the goods of another party. Nearly every state has specific statutes governing the sale-and-disposal process, as provided for in the States Self Service Storage Facility Act. However, if the procedures are not followed to the letter, or if there is an error in any step of the sale-and-disposal process, self-storage operators are left vulnerable to lawsuits claiming loss or damage of stored goods. Due to the incredible diversity of goods commonly stored and the wide range of values of the property, the penalty for conversion can be extremely high.

Sooner or later, every self-storage owner will be faced with the unenviable task of evicting a tenant for failing to pay his rent, reclaiming the storage space and removing or disposing of the tenant's property. Fortunately, most states give self-storage operators extraordinary leverage against delinquent tenants. Nearly every state has specific statutes to govern this process. If the procedure is not followed correctly, an operator leaves himself vulnerable to lawsuits claiming loss or damage of stored goods. Even when the process is handled correctly, it is not uncommon for a disgruntled tenant to file a claim against the operator charging negligence in the removal or disposition of stored property.

For example, a self-storage operator was recently held liable for $250,000 in damages by a California court for the wrongful sale of a customer's property. The court judged that the storage owner's notice of intention of sale was defective, since the operator's newspaper ad did not include the delinquent tenant's name, which was required by state law. The court ruled that the operator was in violation of negligence and conversion as a result of this error.

It is important to remember that many sale-and-disposal lawsuits are the result of trivial errors, such as reversing the numbers on an address. The chance of an error occurring is compounded by the fact that most state statutes generally require that several letters of notification be mailed to tenants with delinquent accounts, and that the self-storage operator publish a legal notice in a general circulation newspaper in the judicial district where the sale will be held. There are, of course, many variations by state on these procedures, and each must be followed to the letter to minimize the likelihood of a lawsuit. It pays to be careful! Judging by several recent jury awards, a trend appears to be developing in which storage operators who make minor violations of state statutes can be held liable for large punitive and emotional damages far in excess of the actual value of a tenant's stored items.

The good news is that there are several effective steps you can take to minimize the risk of sale-and-disposal lawsuits. If you or your staff are involved in the sale-and-disposal process, you must be aware of lien law. Consult with an attorney about preparing a written procedure that outlines the exact steps for disposing of a delinquent tenant's property. Read and follow all state statutes. Always double-check names and addresses, and don't make any changes to information on the rental agreement, such as correcting an obvious misspelling, unless accompanied by a signed change-of-address card. Document, in photographs and writing, every step of the inventory and auction process. In a lawsuit, you will have to show proof that the disposal of the delinquent tenant's goods conformed to state statues. And if there is any reason to question the sale and disposal of a tenant's goods--don't. Many owners prefer to let tenants retrieve their property at no charge, rather than go through the potential liability of an auction (it is certainly preferable to defending yourself in a lawsuit). Last but not least, be absolutely certain you have adequate insurance coverage.

When shopping for sale-and-disposal legal-liability insurance, be aware that this industry-specific coverage is not normally available through regular business insurance carriers and generally cannot be added to a standard business owner's policy. However, the coverage can be secured through insurers specializing in the self-storage industry. No matter how large or small your self-storage facility may be, securing adequate coverage is essential for protecting your business and your peace of mind.

To better help you protect your business, Universal Insurance Facilities Ltd. offers sale-and-disposal legal-liability coverage as part of its extensive self-storage insurance program. Universal's coverage helps protect you against claims arising from the negligent sale, removal, disposal or disposition of customers' property when reclaiming space for which rental or other charges are delinquent or unpaid. The coverage further provides for defense and legal costs, even if a customer's suit is groundless or fraudulent. In addition to loss-of-income and extra-expense coverages,

Universal offers a comprehensive package of coverages specifically designed to meet the unique needs of the self-storage industry. For more information, or to get a quick, no-obligation quote, write P.O. Box 40079, Phoenix, AZ 85067-0079; phone (800) 844-2101; fax (480) 970-6240; e-mail uif@vpico.com; www.vpico.com/universal.