Leading into 2005, the outlook for self-storage commerce remains positive. The industry is growing into an increasingly sophisticated and customer-oriented business. The bad news is legal claims against self-storage facilities are also on the upswing. Self-storage businesses nationwide are seeing an escalating number of liability claims. Some are quickly resolved but, unfortunately for facility owners, the current trend points to more litigation on the horizon. With this increase in lawsuits come higher business costs, particularly legal expenses. Now, more than ever, wise self-storage owners are reviewing their insurance policies to ensure they are adequately covered.
While self-storage shares many types of insurance exposures with other industries, it also faces unique risks. To ensure adequate protection against liability claims, you must have specialty insurance coverages, the most important which are customers' goods legal liability and sale-and-disposal legal liability.
Customers' Goods Legal Liability
This coverage protects against loss or damage to customers’ personal property for which you may become legally responsible. As a general rule, self-storage businesses are not accountable for items stored by tenants. Customers are responsible for providing their own insurance to cover the contents of rented space, and specialized customer-storage insurance programs are readily available to provide it.
However, the reality is not all tenants insure their goods. At some time, an incident may occur wherein your facility is accused of being liable for damage to or loss of a customer's property. Some tenants, particularly those lacking insurance, will insist on seeking financial damages from your business, whether or not you are truly responsible.
A key feature of customers' goods legal liability is defense against such allegations. Your insurer provides the protection you need from claims based on this type of exposure. As legal expenses rise and lawsuits become more common, it is not unusual for legal costs to exceed the amount of an actual claim. Self-storage businesses without customers' goods liability coverage may feel forced to pay damages for which they are not liable just to avoid the legal expenses that could be even more costly.
Customer-storage insurance (also known as tenant insurance) may play a key role in enhancing customers' goods legal-liability coverage. When tenants clearly understand their responsibility to insure their own stored goods and have access to a program at the time of lease, they are more likely to purchase insurance. In the event of damage or loss to their goods, they will be less likely to pursue a claim against the facility.
When selecting a tenant-insurance program for your business, it is worthwhile to consider the program offered by your commercial insurance provider. With commercial and tenant products from a single company, your facility may benefit from more consistent coverage. Plus, in the event of a tenant claim, you have a relationship with the administering company, making subrogation less uncomfortable.
Sale-and-Disposal Legal Liability
Sale-and-disposal legal liability has received a good deal of attention in recent years. This specialty coverage protects self-storage operations against liability claims by customers for loss due to the sale, removal or disposal of stored property as a result of a lien sale. Recent, well-publicized incidents, such as the sale of Malcolm X’s private papers during a self-storage lien auction in 2002, have raised awareness of the importance of this coverage within the industry.
As with customers' goods legal liability, sale-and-disposal coverage should include defense against allegations. Legal expenses are often outside the limit of the coverage, so its importance cannot be overstated. Regardless whether you strictly follow the letter of the law during every lien sale conducted by your facility, people get upset when their property is auctioned. The odds are good that your facility will eventually be named in a lawsuit by a tenant whose possessions you sold. Expenses for these suits can be costly, so make sure your facility is adequately covered.
Limited Pollutant Removal
Self-storage managers work hard to prevent customers from storing hazardous materials in their rented spaces, but occasionally the worst does happen. From old tires and paint to the truly scary toxic chemicals used in illegal drug manufacturing, hazardous materials may find their way onto your self-storage property, and getting rid of them legally and safely can be an expensive and time-consuming proposition.
Limited pollutant-removal specialty coverage pays for the cost to remove pollutants from storage spaces. When reviewing this coverage for your insurance policy, confirm that it will be afforded to all units at your self-storage site, not just those rented after the effective date of the coverage.
Manage Your Risk
Once you are assured your insurance policy is providing adequate coverage for the risk categories described, consider one more key factor in helping to reduce your liability exposures: risk management. This refers to those counteractive measures business owners and their employees can take to prevent loss, including loss from claims against a storage facility. Effective risk management helps reduce insurance costs by decreasing the potential for hazards. It also includes coverage design, which relates to limits and values and types of coverage based on identified exposures.
For example, efforts to prevent customers' goods legal-liability claims may include implementing a tenant-insurance program; carefully explaining the need for insurance to each customer during the lease process; and including an addendum in the lease agreement each tenant must sign, stating that he understands his responsibility and has been presented information on purchasing tenant insurance. Facility maintenance also contributes to reducing these types of claims. Regular inspections and prompt repairs may help to reduce the potential for damage to the customers’ stored items.
In the case of sale-and-disposal claims, one of the most important risk-management tasks is creating a standardized process for dealing with customer delinquencies that meets or exceeds the laws governing your business. Taking consistent and correct legal action before a lien sale may help reduce the potential for liability claims subsequent to the auction.
The industry continues to evolve, and with new developments come increased liability exposures. Self-storage risks require specialty insurance coverage. Operators should seek professional counsel from independent insurance agents who have knowledge of these hazards and can offer programs to address them.
Mike Schofield is vice president of Phoenix-based MiniCo Inc. Established in 1974, MiniCo is a national provider of specialty insurance programs for the self-storage industry. It offers commercial insurance programs and specialty coverage, including customer goods' legal liability, sale-and-disposal legal liability, limited pollutant removal and systems protection. MiniCo also offers TenantOne customer-storage insurance and renter’s insurance programs. For more information, call 800.528.1056; visit www.minico.com.