Warding Off a Wrongful Sale

Scott Zucker Comments
Posted in Articles, Legal Issues
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The Lesson: If you have a good rental agreement that contains protective language in favor of the facility, do not forego your right to have your case heard in court. That is not to say cases should not be settled if they can be, either through mediation or non-binding arbitration. But a facility operator should never forego the protection of the rights afforded him under the terms of a well-written lease agreement by resorting to arbitration.

The other lesson is to make certain you’ve recently reviewed your rental agreement, ensuring that it contains the proper exculpatory provisions to protect your facility in the case of a wrongful sale. Provisions such as value limitations can go a long way in capping the liability risk you may face if you hold an improper sale.

Judgment Day

As the story goes, the arbitrator found in favor of Barshak; CSI was negligent, had converted her property, and the tenant was harmed by the company’s acts. The arbitrator awarded Barshak special damages of $1,141,936, property damages of $152,320 and general damages of $2,500,000, for a total judgment of $3,794,256! This is believed to be a record judgment against a self-storage operator for this type of case.

Since CSI had assigned its insurance rights to Barshak as part of the arbitration agreement, Barshak then pursued her claim against CSI’s insurance company, American Equity Insurance Co. Since the facility had its commercial generalliability policy with American Equity only between July 15, 1998, and July 15, 1999, the company denied coverage for the loss occurring before the policy had started (May 1998).

Additionally, since this was not a sale-and-disposal policy, American Equity claimed this was not a covered loss under the policy. When Barshak sued the insurance company, the court granted summary judgment in favor of American Equity.

The Third Flag: The facility did not have the proper insurance to protect it against the risk of wrongful sale. Even if the policy had been in effect at the time of the sale, the policy did not cover the type of loss that arose from the foreclosure and sale of the stored property. Although more insurance companies now offer their self-storage customers sale-and-disposal coverage, this specialized product is not part of a typical comprehensive general-liability policy.

The Lesson: If you’re in the self-storage business, you must have some type of sale-and-disposal coverage. Don’t assume this coverage is part of a standard insurance package.

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