By David Wilhite
If there is one absolute truism in the self-storage industry it is that you, as a facility owner, do not take possession of your customers' property; you act as a landlord and not a warehousemen. That is why you have a carefully-worded contract that clearly spells out that you are not responsible for any damage to your tenants' stored goods--you don't take care, custody or control of their possessions. However, certain situations can create a legal liability on your part for loss or damage to your tenants' goods that you need to guard against--which brings us to the topic of this month's column: customers' goods legal liability insurance.
Customers' goods legal liability is an important coverage unique to the self-storage industry. It provides coverage against loss of, or damage to, your customers' personal property if you are found to be negligent (note that "negligent" is a euphemism for "legally liable," which will be explained shortly, and not a moral judgement against you). Customers' goods legal liability also provides for defense and legal costs, even if the lawsuit is found to be groundless or fraudulent.
Let's look at an example of how this coverage works. Suppose high winds from a tremendous storm rips the roof off of one of your storage units. Assuming you have adequate business owner's insurance coverage in place, you would be insured against the damage to the building if wind is a covered cause of loss. Let's further assume that, as a prudent facility owner, you have a signed contract on file with your tenant that clearly states you are not responsible for any damage that might occur to his stored goods, and that he should either provide his own insurance or be personally responsible for any loss. So far, so good--you've taken steps necessary to protect yourself against litigation and don't have any cause to worry at this time.
Now let's assume that, as soon as the storm passes, you immediately call an emergency
damage-repair service to cover the damaged roof until permanent repairs can be made.
However, before they can arrive, the rain and wind return in force, further damaging your
tenants' stored goods. At any point, the tenant can file a claim that you are
"negligent" (i.e., legally liable) even though you had no control over the
situation (which can be considered an act of God). You might be deemed negligent, even
though you immediately acted in a prudent manner to protect your tenants' stored goods. In
such a situation, the value of having
adequate customers' goods legal liability cannot be overestimated, as courts are awarding higher monetary judgements than ever in such cases.
It is important to remember that this coverage protects you, not only against damage to your tenants' stored goods for which you are determined to be legally liable, but also against the legal expenses that inevitably arise, even if a lawsuit is found to be without merit. In many instances, just one or two legal consultations will cost more than the annual premium. The good news is that the cost of customers goods legal liability coverage is quite reasonable--ranging from $300-$1,000 a year for $500,000 coverage.
Speaking of coverage limits, it is a good idea to consider securing an adequate amount to protect yourself against claims of negligence. Consider how much you can afford to lose should a judgement be held against you and protect yourself accordingly. And, of course, you should always take preventative measures to protect yourself against litigation in the first place.
Five Steps to Help Protect Yourself Against Claims of Negligence
- Keep a signed lease contract on file between you and your tenant. This is the single most important tool you have for protecting yourself against claims and negligence. Its importance cannot be overemphasized.
- Use a lease that contains language providing for the maximum dollar value of goods that a tenant may store on your premises. Such language may help limit your liability in cases where a judgement is held against you. We recommend that you consult with a legal advisor you can trust when drawing up such language.
- Offer customer-storage insurance (CSI) to your tenants. There are precedent-setting court cases in which the self-storage operator was found to be not liable for damage to a customer's goods because CSI was made available. This coverage can be secured through various sources and should be made available to every tenant.
- Keep a signed statement that property is stored at tenant's sole risk on file. Such statements are usually furnished as lease addendums and are supplied with the application for customer-storage insurance. A signed lease addendum is an important tool for limiting your liability in cases that claim loss or damage due to negligence.
- Implement a regular program of preventative maintenance. For example, you might consider having the roof of your storage facility inspected once or twice each year by a licensed roofing contractor to alert you to the potential for problems or damage.
Remember, 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.
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 (480) 970-6240; www.vpico.com/universal.