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Professional Liability Insurance

Mike Gong Comments

Insurance professionals are often asked about professional-liability insurance by self-storage operators. The purpose of this coverage is simple: to keep you out of trouble and in business. In more technical terms: In your position as a storage operator or manager, you may be exposed to a potential lawsuit with regard to the professional advice, service or consultation provided to a third-party. Professional-liability insurance protects you in this event.

Defining Moments

Professional-liability insurance (also known as errors-and-omissions insurance) is primarily geared toward property-management companies of self-storage sites. Property managers provide a professional service to facility owners and are under contract to facilitate the daily operation of the sites they manage.

A property manager is normally responsible for bringing in income, maintaining the property to set standards, hiring a competent office manager and other staff to run the facility, purchasing products to increase revenue, and providing any additional services related to the property. If any of these services is breached or overlooked and it results in a loss or potential loss of income, the property manager could be held liable.

Case in Point

One unique example of a professional-liability claim occurred during the sale of a self-storage facility. The property was being handled by a property-management company that operated the facility on behalf of a third-party owner (the seller). The owner put the facility up for sale and notified the property manager of his intent. He accepted an offer for the property, and a closing date was scheduled for Oct. 1.

One month prior to the sale, the property manager received a bill to renew the facility’s Yellow Pages ad. This bill was due on Sept. 22. Because the site was up for sale and he knew he would no longer be managing the property, he disregarded the bill. He figured the new owner would take care of advertising and contact the Yellow Pages representatives directly.

On Oct. 1, the sale of the property went through as planned, and the new owner took over management of the site. After the transaction, he went through the new Yellow Pages directory searching for his facility’s ad—his ticket to bring in customers. The ad was nowhere to be found.

The dismayed new owner considered this to be a material change in what he had purchased and went after the seller for potential loss of income due to the advertisement not being renewed. He sued for approximately $750,000 in lost revenue. The seller turned around and filed a lawsuit against the property manager for breach in contract because of his negligence to renew the Yellow Pages ad. The property manager did not carry professional-liability insurance and paid out of pocket for legal fees and settlement of the claim.

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