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 thats often overlookedtenant insurance.
First, lets 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 contractsindemnification agreements or hold-harmless agreementsthat 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.
This means the tenant must provide proof of a current homeowners, business owners or endorsed renters policy in order to store at the facility. As an effective and convenient alternative, storage operators will often offer an insurance/protection program for purchase.
By obliging the tenant to provide proof of insurance, the operator effectively transfers risk (limited to named perils covered in the insurance provider's agreement) to the tenants insurance company. This reduces the chance the tenant will file a claim against the storage operator for any damage that may occur to his stored possessions. Perhaps even better is the transfer of risk to insurance offered through the storage operator, often referred to as tenant-insurance or tenant-protection programs.
A Tenant-Insurance Program
Tenant-insurance programs often have much lower deductibles than homeowners or business owners policies, making for a higher likelihood the tenant will use that option rather than file any kind of a claim against the storage operator. In addition, these programs offer renters a quick and convenient solution to satisfy the insurance requirements of their lease. Its affordable, short-term coverage designed specifically to protect property while its in a rented self-storage space.
This risk-transfer technique is classic risk management, but as any service reseller, the storage operator must select a provider that settles claims in a fair and timely manner, covers the most exposures possible, and provides real value to the tenant such as replacement-cost protection. Along with reducing exposure to lawsuits for damage to customer goods from any number of named perils, the storage operator may be eligible for a discount on his customers goods legal liability insurance from his property and casualty provider.
A properly implemented tenant-protection program results in a dual bonus: It reduces liability exposure for damage to customer goods. It also creates a repeated and sustainable profit center for the self-storage operator. The benefits should garner the attention of any operator who is not already running such a program.
Matt Schaller is vice president of sales and client services for Storage Property Protection (SPP), a provider of self-storage tenant protection. Headquartered in Phoenix, the company operates nationwide. SPP serves the needs of the modern self-storage industry by partnering with owner/operators to provide customers with protection and maximize the operators revenue potential. For more information, call 877.575.7774; e-mail [email protected], visit www.storagepropertyprotection.com.