Insurance Claims by Self-Storage Facility Owners

The year in review

By David Wilhite

It should come as no surprise that the big insurance news for 1999 was Hurricane Floyd,which caused untold millions of dollars of losses in storm-related damages (the damagetotal is still being assessed at the time of this writing). However, despite thedestructive nature of the storm, 1999 ranks as one of the better years for the leastnumber of insurance claims filed by self-storage facility owners. From an industryviewpoint, this is a strong indicator that owners are becoming increasingly aware of thehazards their operations are exposed to and are taking successful measures to guardthemselves against risk.

As we enter the new millennium, it can be valuable to take a look at the types ofclaims that facility owners most commonly reported in 1999 in order to help you assessyour own risk of loss for the coming year. As you will see, many of the types of claimsfiled were at least partially preventable, and there are a variety of measures that youcan implement immediately and at little or no cost that can help reduce your risk ofexposure.

Flood Damage to Buildings/ Premises: Flood damage from Hurricane Floyd, as well asvarious severe thunderstorms, accounted for the largest percentage of claims filed byself-storage facility owners in 1999. Many of these claims were covered by the optionalinsurance offered by the National Flood Insurance Program. The NFIP can provide affordableflood insurance for facility owners, even if your operation is located within theboundaries of a flood plain. The maximum amount of flood coverage currently availablethrough the NFIP is $250,000, although it may not be necessary to purchase the maximumamount. If you are located outside a high-risk area, you can purchase partial coverage andreceive an ACV (actual cash value) payout for damages up to the purchase amount. ExcessFlood Protection, which is available up to twice the regular limit, is also available ifyou have a lot of equity in your buildings and property.

Wind Damage to Buildings/ Premises: Gusting winds from Hurricane Floyd causedsignificant damage to facility roofs, outdoor signs, etc. To help avoid a claim, takeimmediate preventative measures to secure your facility as soon as a hurricane warning hasbeen issued. Begin by boarding up windows or securing them with storm shutters, and braceall exterior doors shut. Secure any loose objects surrounding the area, such as trashcans, signs, etc., so that they do not become flying missiles. Remember, also, that inaddition to protecting your business from hurricane- and wind-induced damage, a completeinsurance package should also include loss-of-business-income coverage and extra-expensecoverage to protect your finances in the event of a loss. Your best bet is to purchaseproperty coverage on a special form basis, which also protects against hail, smoke,explosion and other perils, unless the policy specifically excludes them.

Lightning-Induced Power Surges: Several self-storage owners across the country reportedcomputer and equipment damage due to lightning-induced electrical power surges. Some ofthese losses could have been avoided had surge protectors been in use. Also known aslightning barriers, surge protectors provide protection against electrical storms byinstantaneously clamping down on power surges and diverting them harmlessly to the ground.Even in cases where no outright equipment failure may occur, the life of electronicequipment can be significantly reduced following a lightning surge, and surge protectorscan significantly extend that life. Remember that damage from surges may not only resultin equipment repair and replacement, but also in the loss of income, which can far exceedthe cost of protection devices.

Loss of Business Income: Last but not least, Hurricane Floyd was responsible for alarge percentage of claims for loss of income. Business-interruption insurance(specifically loss-of-income coverage and extra-expense coverage) is designed to minimizeyour risk in the event of a covered cause of loss. Keep in mind that loss-of-income andextra-expense coverages are limited to the actual length of time required to rebuild,repair or replace your damaged buildings or business personal property--in other words,the amount of financial loss is determined by the length of time it takes to get yourfacility back in business. Note also that for loss-of-income coverage to kick in, thesuspension of your business operations must be caused by direct loss or damage as a resultof a covered cause of loss; it does not cover a loss of income due to such causes as lossof power or forced evacuation.

David Wilhite is the marketing manager of Universal Insurance Facilities Inc.Universal offers a complete package of coverages specifically designed to meet the needsof the self-storage industry, including loss of income, employee dishonesty, comprehensivebusiness liability, hazardous-contents removal and customer storage. For more information,contact Universal at Box 40079, Phoenix, AZ 85067-0079; phone (800) 844-2101; fax (480)970-6240; www.vpico.com/universal.