By Matt Schaller
When a self-storage operator opens the front gate and allows customers to enter his property, he opens his business to a number of liability exposures. Fortunately, there are many insurance coverages operators can purchase to transfer risk and minimize liability. However, there is one that’s often overlooked—tenant insurance.
First, let’s take a look at the laundry list of liability exposures storage operators face on a daily basis:
- Lawsuits arising from bodily injury or property damage experienced by a customer while on a the premises, such as a slip or fall, or pinched fingers or hands (in doors or gates).
- Lawsuits resulting from negligence by the facility operator that leads to damage to customers' stored possessions. Examples include improper roof maintenance that leads to leak damage, lack of sprinkler testing or maintenance that leads to leak or fire damage, and improper installation of wiring or lighting that leads to fire damage.
- Lawsuits arising from an improper lien sale, advertising injury or trademark infringement.
- Lawsuits against the organization or its directors arising from acquisition deals gone awry.
- Lawsuits arising from employment practices, including employee discrimination and errors and omissions related to benefits or retirement plans.
So how can an operator manage these risks? One method is to control them through safety, security and protection measures, including an active management team and a limitation-of-value provision in the self-storage lease. However, another method is to transfer the risk. This transfer can take the form of contracts—indemnification agreements or hold-harmless agreements—that literally transfer the risk to others. You can also transfer the risk to an insurance company. Tenant insurance falls into this second category.
When it comes to insurance and risk management, it's advisable for self-storage operators to require proof of insurance from tenants as part of the rental contract. In this case, it becomes part of the lease language. The contract states that the customer is required to insure stored property against fire, burglary and water damage among other common types of losses that occur at self-storage facilities. Common lease language could appear as:
Occupant is required to maintain insurance on all property in the storage unit in an amount at least equal to the value of such property. Occupant is required to show proof of insurance to owner before placing items into the unit. Insurance on occupants property is a material condition of this agreement.