By David Wilhite
Sale-and-disposal legal-liability coverage is unique to the self-storage industry. As mentioned in Part I of this article, sale-and-disposal legal-liability provides self-storage operators with protection against conversion: the act of wrongfully taking, selling, using or destroying the goods of another party. Such claims are made against negligent acts arising from the disposition or disposal of customers' property when reclaiming space for which rental charges are delinquent or unpaid.
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. Not long ago, 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.
Most states give self-storage operators extraordinary leverage against delinquent tenants. Nearly every state has specific statutes that govern the sale-and-disposal process, as provided for in the Self-Storage Facility Act. However, if the procedures are not precisely followed, 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. Therefore, if you are operating a facility in a state in which the statute has been enacted, we recommend that you follow the Self-Storage Facility Act guidelines to the letter. If you are operating a facility in a state in which the statute has not been enacted, we recommend that, with the help of a legal advisor, you include a clearly worded statement in your rental agreement that states that you are a landlord renting space to tenants suitable for storage; that neither you nor your facility exert any care, control or custody over a tenant's property; and that responsibility for stored property remains vested with the tenant and not the landlord.
Sale-and-disposal legal-liability insurance is an important coverage that should be considered an essential part of every self-storage owner's business-insurance package. Although it is not normally available through regular insurance carriers and generally cannot be added to a standard business-owner's policy, the coverage can be secured through insurers specializing in the self-storage industry. Universal Insurance Facilities, Ltd. offers sale-and-disposal legal-liability coverage as part of its extensive self-storage insurance program. Universal's insurance provides broad-form coverage against loss or damage to your customer's personal property, and protects you against claims arising from the sale, removal, disposal or disposition of customers' property when reclaiming space for which rental or other charges are delinquent or unpaid. The coverage also provides for defense and legal costs, even if a customer's suit is groundless or fraudulent.
David Wilhite is the marketing manager of Universal Insurance Facilities Inc. Universal offers a complete package of coverages specifically designed to meet the needs of the self-storage industry, including loss of income, employee dishonesty, comprehensive business liability, hazardous-contents removal and customer storage. For more information, contact Universal at Box 40079, Phoenix, AZ 85067-0079; phone (800) 844-2101; fax (602) 970-6240; Web: www.vpico.com/universal.
Spring Into Action With Flood Insurance
April showers may bring May flowers, but floods can happen anywhere and at any time. In fact, more than 90 percent of all natural disasters that occur in the United States today are flood-related. Yet, some self-storage owners neglect to secure this vital coverage in the mistaken belief that flooding is a once-in-a-lifetime occurrence that only strikes high-risk areas. The National Flood Insurance Program (NFIP) divides risk areas into three basic groups: low, medium and high. Surprisingly, less than one-third of all reported flood claims come from high-risk areas, and more than one quarter come from low-risk areas. That's why most business-insurance experts strongly recommend that you secure flood insurance, even those in low-risk areas. Remember, your facility doesn't have to be located near a river or a lake to be at risk; heavy storms, winter run-off and local drainage problems can cause just as much destruction as local waterways overrun by spring rains.
Flood insurance is a major asset to you as a self-storage-facility owner: It provides peace of mind against the physical, emotional and financial stresses that accompany disaster. The good news is that you can get coverage even if your facility is located within the boundaries of a flood plain. The NFIP and its write-your-own servicing companies guarantee coverage for anyone living in a high-risk area, regardless of location. Flood insurance costs an average of $300 per year for businesses, and a special, low-cost, preferred-risk policy is available for those businesses located in less hazardous areas. Keep in mind, though, that while you can purchase flood insurance at any time, there is a 30-day waiting period from the date of your application before coverage goes into effect. You can't just call your agent when the rain begins to fall to put coverage in place.
The maximum amount of flood coverage currently available through the NFIP is $250,000. Depending on the area where you live, though, it may not be necessary to purchase flood insurance at maximum amounts. If you are located outside a designated high-risk area, you can purchase partial coverage and receive an actual cash value (ACV) payout for damages up to the purchase amount. However, if you have a lot of equity in your buildings and property, you may want to consider purchasing excess flood protection, which is available up to twice the regular limit. This extra protection may be very prudent given today's inflation and excessive construction costs.