It never ceases to amaze me how few self-storage tenants purchase self-storage insurance. I’ve started asking managers their theory as to why. They’ve offered a litany of answers, the two most common being: 1) Customers believe their goods are covered by their homeowners insurance, and 2) The manager isn’t sure how to emphasize the importance of self-storage insurance without making the facility sound like a disaster waiting to happen.
Why should the tenant buy separate self-storage insurance? I’m not an insurance sales person. However, over years of discussing lease clauses with clients, I’ve come to recognize there’s a legal answer to the question. In fact, it’s almost developed into a sales pitch. If my explanation helps you, all the better. If I offend any self-storage insurance companies, I apologize.
Prong 1: Value Limitation
I’m making the assumption your lease includes a value limitation on items stored, meaning you’ve stated the tenant’s belongings can’t exceed a certain dollar limit. (I wrote about this in ISS March 2004, available in “Articles on Demand” at www.insideselfstorage.com.)
This is where your “pitch” begins. Customers will likely have questions about the value limitation; regardless, you should discuss it with them, using the topic to launch a three-pronged education process.
First, make sure tenants understand the self-storage facility is seldom liable for loss or damage to stored property. There are some instances where you could be liable, which is why the damage limitation is included in the lease, but it’s rare. Tenants should leave your office understanding they shouldn’t look to the facility for recovery in case of loss.
Prong 2: Actual Value
The second prong of the education process is to overcome objections about the dollar value of limitation (often $2,000). The tenants should grasp that, although they see their property as extremely valuable—even priceless—the actual value is based on its depreciated worth. If a couple pays $8,000 for a complete living room set and stores it five years later, in their mind, the furniture is worth the original price tag. However, if a facility would be liable at all, the appropriate measure of damage is the property’s cash value.
Actual cash value is a fancy legal term. The way I explain it to clients is it’s the price the property would command at a flea market. We all know as soon as a new car is driven off the dealer lot, it begins depreciating. Well, so does furniture, camping equipment, secondhand appliances and other property; age automatically depreciates most property (with the exception of antiques and art).
Explain to tenants that you’re rarely liable for loss at your facility, but if you were, they should only expect damages equal to the actual cash/flea-market value of the property.
Prong 3: Homeowners Insurance Reality
Finally, you need to explain there are two values to obtaining self-storage insurance. First, it may provide replacement cost rather than the actual cash value in case of loss. Make it clear to tenants this is an option available only through additional coverage, and the facility is not an insurance company. That is why it is so important to have insurance on your property.
Next, you need to help your clients understand why it may not be in their best interest to rely on homeowners or renters insurance. These have limitations. In my opinion, a homeowners policy has greater exclusions, and higher limits and deductibles for water-related problems. Some don’t cover certain types of water intrusions or mold at all.
Conversely, most companies writing self-storage insurance have policies covering losses due to mold and dampness, which are among the most common types of claims in self-storage. Thus, you’re sort of setting yourself up for failure if you don’t coach tenants into buying insurance.
If you tell tenants it’s likely their homeowners or renters insurance would cover the stored property, and you haven’t seen the policy to know what the exclusions, limits or deductibles are, you're probably crossing the line. You can’t act as an insurance broker giving insurance or legal advice. However, you can say self-storage policies often cover many things that aren’t protected under traditional homeowners or renters insurance, and encourage the tenant to compare coverages.
My three-pronged education approach delivers three benefits: 1) Not only have you helped educate the tenant, you’ve fixed it in his mind the facility probably isn’t liable for a loss. 2) If there is a loss, the tenant understands you’re going to be liable for a ridiculously low sum of money that wouldn’t be worth suing over. 3) You’ve also helped act as a friend to customers, educating them as to why spending the extra few dollars a month would buy the protection they need.
Remember every self-storage policy you sell is almost assuredly one less lawsuit your facility faces in the event of a loss, damage or disaster.
Jeffrey Greenberger practices with the law firm of Katz, Greenberger & Norton LLP in Cincinnati, which primarily represents owners and operators of commercial real estate, including self-storage. This column is for the purpose of providing general legal insight into the self-storage field and should not be substituted for the advice of your own attorney. Mr. Greenberger is licensed to practice in the states of Ohio and Kentucky, and is the legal counsel for the Ohio Self Storage Owners Society and the Kentucky Self Storage Association. He is a regular contributor to Inside Self- Storage magazine and the tradeshows it sponsors. For more information, call 513.721.5151; e-mail email@example.com.