Insurance Corner

Evictions and Auctions: Limiting YourLiability Exposure
Part I

By David Wilhite

The self-storage business is a rental business. That is tosay, the self-storage owner rents out space for storage purposesto tenants; he does not store the property of customers. He actsas a landlord, not a warehouseman. Like any good landlord, theself-storage operator's goal is to keep occupancy high and retainhis tenants. Unfortunately, sooner or later he will be faced withthe task of evicting a tenant for failure to pay rent, then haveto reclaim the storage space and remove or dispose of thetenant's property. The most common way to do this is to place alien against the property and hold an auction to dispose of thegoods.

In general, most states give self-storage operatorsextraordinary leverage against delinquent tenants. Nearly everystate has specific statutes that govern the sale and disposalprocess, as provided for in the state's Self Service StorageFacility Act. However, if the procedures are not followed to theletter, or if there is an error in any step of the sale anddisposal process, the self-storage operator leaves himselfvulnerable to lawsuits claiming loss or damage of stored goods.Even when the process is handled correctly, it is not uncommonfor a disgruntled tenant to file a claim against the operatorcharging negligence in the removal or disposition of storedproperty.

Sale and disposal legal liability insurance is an importantcoverage that is specific to the self-storage industry and shouldbe considered an essential part of every self-storage owner'sbusiness insurance package. Sale and disposal legal liabilitycoverage provides self-storage operators with protection againstconversion: the act of wrongfully taking, selling, using ordestroying the goods of another party. Due to the incrediblediversity of goods commonly stored and the wide range of valuesof the property, the penalty for conversion can be extremelyhigh.

Recently a self-storage operator was held liable for $250,000in damages by a California court for the wrongful sale of acustomer's property. The court judged that the storage owner'snotice of intention of sale was defective, since the operator'snewspaper ad did not include the delinquent tenant's name, whichwas required by state law. The court ruled that the operator wasin violation of negligence and conversion as a result of thiserror.

Many such lawsuits are the result of trivial errors, such asreversing the numbers on an address. The chance of an erroroccurring is compounded by the fact that most state statutesgenerally require that several letters of notification be mailedto tenants with delinquent accounts, and that the self-storageoperator publish a legal notice in a general circulationnewspaper in the judicial district where the sale will be held.There are, of course, many variations by state on theseprocedures, and each must be followed to the letter to minimizethe likelihood of a lawsuit. It pays to be careful! A trendappears to be developing in which storage operators who makeminor violations of state statutes can be held liable for verylarge punitive and emotional damages--far in excess of the actualvalue of a tenant's stored items.

The good news is, in most cases lawsuits can be avoided. Ifyou are a self-storage operator involved in sale and disposal,you must be aware of lien law. Consult with an attorney aboutpreparing a written procedure that outlines the exact steps fordisposing of a delinquent tenant's property. Read and follow allstate statutes explicitly. Always double-check names andaddresses, and don't make any changes to information on therental agreement, such as correcting an obvious misspelling,unless accompanied by a signed change of address card.

Document, in photographs and writing, every step of theinventory and auction process. In a lawsuit, you will have toshow proof that the disposal of the delinquent tenant's goodsconformed to state statues. And if there is any reason toquestion the sale and disposal of a tenant's goods, don't do it.Many owners prefer to let tenants retrieve their property at nocharge, rather than go through the potential liability of anauction. (It is certainly preferable to defending yourself in alawsuit.) Last but not least, be absolutely certain you haveadequate insurance coverage.

Sale and disposal legal liability insurance is not normallyavailable through regular business insurance carriers andgenerally cannot be added to a standard business owners policy.However, the coverage can be secured through insurersspecializing in the self-storage industry. No matter how large orsmall your self-storage facility may be, securing adequatecoverage is essential for protecting your business and your peaceof mind.

David Wilhite is marketing director at Universal InsuranceFacilities Ltd., which offers a complete insurance packagespecifically designed to meet the needs of the self-storageindustry. For more information, Universal may becontacted at Box 5400, Scottsdale, AZ 85261-9957; phone (800)844-2101; fax (602) 970-6240; Internet http://www.vpico.com/universal.