By David Wilhite
Insuring Your Facility
One of the most difficult and confusing tasks associated with running a profitable self-storage facility has always been the need to secure proper insurance coverage. Unlike many other commercial ventures that consider insurance a simple cost of doing business, the multiple property and liability exposures specific to the self-storage industry place an uncommon emphasis on the need to secure comprehensive coverage to meet unexpected hazards.
Consider this: In addition to protecting your buildings and equipment against common hazards such as fire, flood, wind, vandalism, etc., you must also insure the safety of your tenants' property. In addition, you need to guard against liability suits filed by tenants who have been injured while on your premises, and property damage to tenants' property such as a gate closing on a vehicle. Furthermore, due to the physical nature of a storage facility, you must secure protection for your income against business interruptions that occur after a loss. There are many other important coverages of which you must be aware, such as the need for workers' compensation, as required by common law.
Here is an overview of the major coverages you need to secure in order to adequately insure your self-storage operation:
This coverage protects your property from direct physical loss or damage. It includes replacement costs on buildings and business/personal property with no coinsurance.
Loss of Income
This coverage protects your income from direct physical loss or damage to business property. Protection against business interruption and extra expenses are also provided under this coverage.
Comprehensive Business Liability
This coverage provides coverage for bodily injury and property damage that occurs on your premises.
Sale and Disposal Legal Liability
This coverage provides broad-form coverage to protect you against negligent acts that arise from the sale, removal or disposal of customers' property when reclaiming space for which rental or other charges are delinquent or unpaid.
What a Specialty Agency Can Do for You
Although there are currently more than 25,000 self-storage facilities across the country, until recently no insurance company has offered every one of the coverages necessary to meet all of the unique needs of the self-storage industry, including such specialized coverages as flood insurance and workers' compensation.
In 1994, Universal Insurance Facilities Ltd. introduced its Self-Storage Insurance Program, which provides all of the property and liability coverages self-storage owners need in a single, affordable package. We recently spoke with William Mattern, Universal's Self-Storage Insurance Program Manager, about the company's program and its plans for the future.
Can you tell us a little bit about how your program got started?
Our goal from the very beginning was to make it easy for self-storage owners to insure their facilities by offering a comprehensive yet affordable insurance package. One of the most difficult jobs facing every self-storage owner has always been the need to secure adequate insurance coverage. Besides protecting your buildings and equipment against fire, wind and vandalism, you also need to insure the safety of your tenants' property. Plus, you need to protect yourself against liability suits filed by tenants injured while on your premises,and tenants' property-damage lawsuits. You also need to protect your income against any business interruptions that occur after a loss. And there are other important coverages that are required by law, such as workers' compensation, that facility owners need to be aware of. Our program makes it easy for facility operators to get the most complete, current and comprehensive insurance coverage ever offered to the self-storage industry.
Customers' Goods Legal Liability
This coverage provides broad-form coverage against loss or damage to your customers' personal property, if you are legally liable. It also provides defense and legal costs even if the suit is groundless or fraudulent.
This coverage provides broad-form coverage against loss or damages arising from floods to your property and your customers' property. Interestingly enough, this coverage is available to self-storage facilities even if they are located in a flood plain, so you can be assured of coverage even if your facility is in a high risk area.
In nearly all 50 states, you are required to cover your employees under workers' compensation. If, for example, you fail to warn employees of any existing danger, under both common and workers' compensation laws, you can be held liable for damage suits brought on by an employee. Therefore, this very important coverage must be considered a mandatory part of your self-storage insurance package.
Choosing the Insurance Company That's Right for You
As a responsible self-storage facility owner, you know that securing the right insurance coverages can help reduce your operating risks and protect your assets. That's why you've taken the time to evaluate your exposures and worked with your agent or broker to choose the coverages you need to protect yourself in the event of a loss- especially a catastrophic loss. But if you want to get the best insurance protection, you need to do more than just choose the right coverages- you also need to choose the right insurance company.
Why is it important to choose the right insurance company? Because if you don't, you won't know how a particular company's going to perform until you have a loss- and by then it may be too late. You don't want to discover after a disaster that your carrier has a history of poor claims handling, or that it's financial standing is in jeopardy. And there are other advantages to choosing the right insurance company that can save you money and get you the specialized coverages you need to better protect your facility.
Choosing the insurance company that's right for you is easy when you have the proper information. Here are the three most important things you need to know when considering an insurance company:
1. The Company's Financial Strength
2. The Company's Claims Performance
3. The Company's Specialized
Knowledge of Your Business
An insurance company's financial strength reflects its ability to meet its obligations to its policyholders- in fact, financial strength is the very cornerstone of the promises that insurance companies are built upon. Therefore, in order to determine if an insurance company will be able to meet any claims you make, you need to know if it has a solid balance sheet. The easiest way to do this is to check the rating report of an independent insurance industry analyst, such as the A.M. Best Company.
A.M. Best has been reporting on the financial condition of insurance companies since 1899 and ranks as the oldest and most experienced rating agency in the world. A Best's rating is assigned to every major insurer operating in the United States today after carefully evaluating each company's performance in five critical areas: profitability; leverage; liquidity; reserve adequacy; and reinsurance.
Best ratings range from A++ (superior) all the way down to F (in liquidation). Although a solid Best rating is not an actual guarantee of a company's financial strength, it is a strong indicator that you will receive prompt and fair claims handling- both today and in the future.
Claims performance is the make or break factor that separates a good insurance company from a great one. Each year millions of business owners file claims with their insurance companies that may be subject to careless handling and needless delays. And as anyone who has ever suffered a loss can tell you, the trauma of a fire or theft is stressful enough without having to worry about your insurance company's performance when servicing your claim.
What should you expect from a reputable insurance company when reporting a claim? Fast, fair claims handling and courteous service. First, a responsive company should contact you within 24 hours of receiving your report to begin the settlement process. Second, the company should make every attempt to dispatch a claims adjuster to inspect any property damage within 48 hours of receiving your claim (the best companies will often dispatch an adjuster within the hour). Third, and most importantly, the company should attempt to make the claim settling process as smooth as possible, avoiding unnecessary questions and issuing payment without delay.
Specialized Knowledge of Your Business
In order to protect your assets, an insurance company (and its brokers and agents) must have specialized knowledge of the self-storage industry, as well as a commitment to stay abreast of industry changes through education and training. Moreover, a concerned company will also be able to recommend measures that will help you safeguard against losses as well as provide you with the coverages you need to protect your facility.
Some insurance companies have developed specialized coverages for the self-storage industry that not only provide superior protection but can actually contribute to lower premiums. A company that is very familiar with current construction costs, or that has in-depth knowledge of the latest keyless security systems, for example, can more realistically handle any claims you may have as well as provide you with the proper coverage in the first place. Look for a company that will work with you to help reduce losses in the workplace, which in turn can help contain your insurance costs.
Understanding and Controlling Liability Losses
Business liability insurance is designed to protect you against claims that someone was hurt, or property was damaged, on your premises And as every self-storage facility owner knows, recognizing and controlling liability exposures is a prime concern in today's litigious society. Merely having coverage in place is not enough. Today's courts are getting tough on business owners who allow hazardous conditions to exist, and judging by the awards juries sometimes hand out, no amount of protection may be enough.
Take Pro-Active Action
The single most important key to protecting your self-storage facility against liability lawsuits is awareness: awareness of your responsibilities under the law, awareness of potential hazards at your facility, and awareness of your need to do everything a prudent person would do to prevent accidents. Court decisions can and do favor those who take pro-active steps; and in the case of a lawsuit, an ounce of prevention is definitely worth a pound of cure.
Reduce Potential Liabilities
The best way to limit your liability in advance is by identifying and eliminating (or at least minimizing) potential risks. Take a walk around your facility and play "What if..." where you try to imagine what can go wrong, and what you can do to safeguard against those situations occurring. For example, you may discover a glaring hazard, such as a large pothole outside of one of your storage units, that needs to be blocked off and covered. Or you may chance upon a less obvious risk, such as a worn or curled floor mat, which was intended to prevent slips and falls but may actually cause them.
Remember that a potentially dangerous situation can be created in an instant by a careless employee in the normal course of his or her work; for example, by leaving a wet floor unattended for a few moments while mopping up. Courts can and will hold management responsible for the actions of their employees in these situations. Once again, a pro-active response is the key; in this case, by advising third parties of a specific risk by posting a "Caution! Slippery When Wet" sign in the area being cleaned.
There are several other important procedures for reducing liabilities that can help prevent lawsuits, including conducting accident training sessions with your employees; conducting regular quality-control measures of your facilities and equipment; and keeping documented records of preventive maintenance. Be sure to hire competent employees and regularly monitor their performance. If you are not at the facility on a daily basis, make a practice to drop by periodically without notice in order to spot unforeseen risks.
A Note On Preventing Slips and Falls
Since slips and falls account for the vast majority of liability claims, it pays to be extra careful about preventing them. Slippery floors from rain and snow are the leading cause of tenant falls. You can reduce your liability substantially when you take reasonable and prudent care to prevent accidents. Begin by keeping floors dry. In bad weather, put up "caution" signs when the floor is wet; install non-skid moisture-absorbing carpet or mats; and keep a mop and bucket handy to control runoff.
What to Do When an Accident Occurs
No matter how carefully laid your plans may be, accidents can and do occur. If someone on your premises should suffer an injury, take immediate action by first calling an ambulance for the injured person, then document all known facts surrounding the accident in order to accurately reconstruct the events in case of a lawsuit. For safety's sake, be sure to get all of the following information in writing:
- Name, address and phone number of injured party;
- Date and time of the accident;
- Name of employee(s) on duty and name(s) of any witnesses;
- Details about what caused the accident; (i.e., was it caused by the customer or by a pre-existing hazardous condition?)
- Information about when the site was last cleaned and inspected for hazards.
- It's also a good idea to take a picture or video footage of the site where the accident occurred, and to try to get a written statement from the injured party, if possible. And if a trip to the hospital is necessary, call an ambulance- don't use a personal or company vehicle. You may expose yourself to a whole new set of liabilities that are much better avoided.
What to Do in the Event of a Claim
- In the event of an accident, notify your insurance company immediately. Give your agent all of the information outlined above. If you are hit with a lawsuit, the number and nature of available defenses depends upon the specifics of the individual suit. In an injury-related action, the underlying claims must be analyzed to determine available defense; while in negligence cases, the owner may be able to assert the claimant's degree of fault, which could reduce or even eliminate his right to recover damages. Assuming the circumstance is covered, your insurance company will come to your defense.
- One final note: In today's litigious society, aggregate liability limits of $1 million or more can no longer be considered unreasonable. For maximum protection, look for a business liability policy that is written on an occurrence basis with no aggregate limit.
Evictions and Auctions: Limiting Your Liability Exposure
The self-storage business is a rental business; the facility operator acts as a landlord, not a warehouseman. Unfortunately, sooner or later every self-storage owner will be faced with the task of having to evict tenants for failure to pay their rent, and reclaim the storage space by removing or disposing of the tenant's property. The most common way to do this is to place a lien against the property and hold an auction.
In general, most states give self-storage operators extraordinary leverage against delinquent tenants. 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, the self-storage 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.
Sale and disposal legal liability insurance is a must-have coverage for all self-storage owners that provides protection against conversion: the act of wrongfully taking, selling, using or destroying the goods of another party. Due to the diversity of goods commonly stored and the wide range of values of the property, the penalty for conversion can be extremely high. Recently a self-storage operator was 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.
Many such 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.
The good news is that in most cases lawsuits can be avoided. Start by familiarizing yourself with lien laws. 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 to the letter. 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.
Finally, if there is any reason to question the sale and disposal of a tenant's goods- don't hold the auction. 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). And be absolutely certain you have adequate insurance coverage. Sale and disposal legal liability insurance is not normally available through regular business insurance carriers and generally cannot be added to a standard business-owners policy. However, the coverage can be secured through insurers specializing in the self-storage industry.
David Wilhite is the marketing manager of Universal Insurance Facilities Ltd. Universal offers a complete package of coverages specifically designed to meet the needs of the self-storage industry. For more information on Universal's coverages, contact Universal Insurance Facilities Ltd., Box 5400, Scottsdale, AZ 85261-9957; phone: (800) 844-2101; fax: (602) 970-6240; or Web site: http://www.vpico.com/universal .