10 Insurance Coverages Your Self-Storage Business Needs Today, Plus When and How to Update Your Policy

Spring is the beginning of peak move-in season for many self-storage operators. It’s also a great time to reassess your business needs. For example, do you have the right property and casualty insurance coverage in place?

Self-storage facilities face unique risks. When it comes to insurance, many operators choose a standard policy for commercial buildings, however, it may not be enough. It’s critical to have the right coverage to protect your investment, and following are 10 you absolutely need today. Most aren’t included in a typical “off the shelf” policy. Even when working with a carrier that specializes in this industry, some products must be specifically requested or increased to be effective. I’ll also talk about when and how to review and update your coverage.

The Products

1. Customer goods legal liability. Even though your self-storage lease agreement states that you aren’t responsible for stored property, tenants can sue you for damage to or loss of their belongings. In these cases, customer goods legal liability will pay for the related legal fees and settlements. You can typically select limits from $25,000 to $1 million. A good way to determine your coverage needs is to multiply the number of units at your facility by the value limitation in your contract. Note: This coverage is only available from insurance providers who specialize in our industry.

2. Wrongful-sale liability. Also known as sale and disposal liability, this is another important coverage that’s only offered through self-storage specialty insurers. When selling or disposing of a customer’s property to reclaim a delinquent unit, it’s critical to follow the state-specific lien law. If you miss just one step, even if a tenant frivolously claims you were negligent, wrongful-sale coverage will pay for any related legal fees and settlements. Human error is always a possibility when it comes to a lien sale, so having the right coverage is vital.

3. Cyber liability. Data breaches are a regular occurrence these days, and self-storage operators have an increased risk due to the collection of customer information including driver’s license numbers, Social Security numbers and credit card information. In the case of a breach or other cyber-related crime, it’s beneficial to have a separate policy that specifically addresses these types of exposures. Some insurance companies offer cyber enhancements as inexpensive add-ons to a package policy. Just check them carefully, as most only cover expenses related to a data breach.

4. Pollution liability. Vehicles, equipment, machinery, hazardous waste, contamination, dangerous chemicals … Oh, my! There are many hidden risks that can leave you with significant out-of-pocket expenses for cleanup and legal fees. Most general-liability policies exclude pollution. Even if you see a coverage enhancement for “pollutant cleanup,” there needs to be a covered cause of loss (fire, for example) for it to kick in. Luckily, some insurers cover pollution liability. This policy is highly recommended for all operators, and an agent who specializes in self-storage can help place it with ease.

5. Employment-practices liability. Even with today’s trend toward remote facility management, self-storage owners can be exposed to employment-related lawsuits, whether it’s a team member suing for wrongful termination, discrimination or sexual harassment, or a third party suing for discrimination. An employment-practices liability policy with third-party coverage will pay legal fees and settlements for these types of claims, subject to terms and conditions. Pay careful attention to the wage-and-hour sublimit, and consult with your insurance agent to ensure your coverage matches your operation.

6. Hired and non-owned auto liability. When you send a self-storage manager out to run an errand on company time, perhaps to the bank or on a marketing visit, you have auto-liability exposure. However, if they get into an accident in their personal vehicle and their limits are exhausted, your company could face a lawsuit. Hired and non-owned auto liability is an easy coverage to add to most policies.

7. Business income. There are various forms of business-income insurance on the market, but a program dedicated to self-storage may be able to offer you extended coverage. The typical policy will pay for 12 months of rebuilding after a covered claim; however, it can take 18 months to two years or longer to rebuild after a significant loss, so ask your agent about options.

Additionally, after you rebuild, it’s important to have “extended period of indemnity” to continue recouping lost income until you get back to your previous facility occupancy. Your agent will be able determine which companies can offer you this coverage.

8. Ordinance or law. The standard self-storage insurance policy with replacement-cost coverage will pay to repair or replace damaged property with “like kind and quality” materials. If a town, city, state or federal code states that upgraded materials or specifications are required to rebuild, a basic policy won’t pay for them, so it’s important to consider ordinance or law coverage. Note: The older the facility, the more likely that you’ll encounter code changes.

9. Outdoor property. Most insurance policies have very little coverage for outdoor property, which can include fences, gates and signs. It’s critical to review your self-storage policy for these items and increase the limit accordingly.

10. Employee dishonesty. Self-storage isn’t immune to corrupt acts by internal team members. Employee-dishonesty coverage will reimburse you for any funds stolen by staff. These types of offenses add up over time, sometimes many years, and most standard policies don’t include this coverage, or they have a small limit. Evaluate your options for crime coverage to safeguard your business against these losses.

Review and Update

As you prepare for the busy self-storage rental season, evaluate your insurance coverage to ensure your business is properly protected. At a minimum, assess your policy annually, typically 60 to 90 days prior to renewal. This is also when your agent will go over your coverages and request quotes from your current insurer and other potential providers. Reaching out before your policy expires will give them time to update their files and request quotes that include the proper coverages.

Always notify your agent immediately if there’s a significant change in your business, for example, you start renting commercial or office space in addition to self-storage, or you want to add a new ancillary product or service such as mailbox rentals or wine storage. Anything outside the scope of typical operation should be reviewed with your agent in advance. Additionally, alert them before embarking on an expansion project and again once you receive your Certificate of Occupancy. This includes adding portable-storage units. The goal is to always ensure you have the proper insurance coverage.

By working with an agent who specializes in self-storage, understanding the coverages available, reviewing your policy annually, and making note of any changes in your business, you can feel confident that you’re well protected for many of the special hazards that exist in our industry.

Jessica Lamoureux is the program manager for the self-storage division of World Insurance Associates LLC, which offers insurance and risk-management solutions to self-storage operators nationwide. World Insurance serves more than 300,000 clients from more than 250 offices. For more information, call 860.955.9944; email [email protected].