In the insurance world, liability coverage is intended to protect an entity against claims alleging that a business or person was negligent or acted inappropriately, resulting in bodily injury or property damage. Self-storage seems to be a simple and straightforward industry: Facility owners do not take bailment of tenants goods, and the lease agreement provides a first line of defense. So why does a facility have so much liability exposure?
Although the foundation of the industry is straightforward, your self-storage operation has technical, legal and financial aspects not found in other businesses. You may have heard your insurance agent describe liability claims as having a long tail, meaning you might not find out about them until much later, even years after incidents occurred. Even still, the right insurance should alleviate your concerns. Lets take a closer look at the six most critical liability exposures prevalent at self-storage facilities today and the coverages available to protect against them.
Business Liability Insurance
This is typically the basis of any business policy and is very broad coverage. It provides protection against lawsuits claiming someone was hurt or property was damaged on your premises. Also, there is coverage for personal-injury lawsuits involving libel, slander, physical eviction or false arrest of a third party.
Some other aspects it covers are advertising-injury lawsuits involving plagiarism of advertising copy, infringement of copyright, title or slogan, or false advertising. Some of these claims might not seem like bodily injury or property damages, but thats how the courts have interpreted these scenarios.
If youre found negligent, business liability insurance pays those sums you become legally obligated to pay. One of the most important components of this coverage is the legal defense provided. Its alarming and surprising the types of claims that occur at self-storage facilities, such as:
- A tenant claims she was raped by the facility manager.
- A guest/tenant at the facility was bit by a dog on the property.
- A facility that didnt do its research used the same exact phone name as another that was protected by a copyright.
- A pregnant woman slipped coming out of the bathroom.
The insurance company will defend your entity if theres negligence or it settles on your behalf. The limit of liability is available for payment to the injured party. Not only is it essential to have this coverage, its important to have sufficient limits. You would be shocked to see how large these settlements are in this segment of the insurance industry. Many carriers will provide up to $5 million liability, and you can obtain additional limits by purchasing an umbrella policy that gives additional coverage over the basic.
Look for defense costs outside the limit, which means the limit you choose is available for settlements or judgments and legal defense is in addition to the limit. Many times legal defense is as much or more than the claims.
This is what we refer to in the insurance world as goodwill coverage. Its a sublimit of the business liability coverage, providing typical limits from $5,000 to $25,000. The name of this coverage actually speaks for itself. Medical payments provide payment of medical expenses for bodily injury to others, regardless of liability. Consider the follow situations:
- Someone hurts himself at the facility.
- A door hits a tenant in the head.
- A tenant slips on ice.
- A kid trips inside one of the units.
These are just a few examples of injuries that could occur at a facility. In any of these cases or similar scenarios, the insurance company could decide to offer medical-payment reimbursement for the injury without determining negligence. Oftentimes just paying the medical costs could wrap up the claim without the need for attorneys and long legal battles. This is a coverage for which negligence is not necessary. Its imperative you understand, however, that you cannot offer this coverage to the injured party. Its a decision thats always made by the insurance company.
Customers Goods Legal Liability
This coverage is specifically designed for self-storage. Its intended to help guard against issues and hazards that only surface in our industry. When you own a facility, you act as a landlord, not a warehouseman, because you never take possession of tenants goods. You are not responsible for those goods, since youre simply renting space. However, there are certain situations that can create legal liability on your part.
For example, by providing a building in which to store goods, you represent protection against the elements. If your customers property is damaged by water because you did not properly maintain your roof, he may feel you were negligent in honoring that representation.
If you are found legally liable for damage to tenant property, your customers goods legal liability insurance coverage will probably pay the claim. It might also provide defense costs, even if a claim is found to be groundless, false or fraudulent. Most of these coverages also include coverage for damage done to customers good stored in the open. This coverage is not normally available in the standard insurance market and usually cannot be added to the basic business owners insurance policy.
Sale and Disposal Liability
This coverage provides protection against conversionthe act of wrongfully taking, selling, using or destroying the goods of another party. Sooner or later, every self-storage owner will be faced with the unenviable task of evicting a tenant for failing to pay his rent, reclaiming the storage space, and removing or disposing of the tenants property. This coverage helps protect you against claims arising from the negligent sale, removal, disposal or disposition of customers property when reclaiming space for which rental or other charges are delinquent or unpaid. The coverage further provides for defense and legal costs, even if a customers suit is groundless or fraudulent.
Nearly every state has specific statues governing the sale and disposal process. However, if the procedures are not followed to the letter, or if there is an error in any step of the process, self-storage operators are left vulnerable to lawsuits claiming loss or damage to stored goods. Due to the incredible diversity of goods commonly stored and the wide range of values of the property, the penalty for conversion can be extremely high.
In a lawsuit, you will have to show proof that the disposal of the delinquent tenants goods conformed to the state statues. If theres any reason to question the sale of a tenants goods, dont do it! Many owners prefer to allow tenants to retrieve their property at no charge, rather than go through the potential liability of an auction. Again, this coverage is industry-specific and not normally available through regular business-insurance providers.
Pollution Liability Coverage
Pollution liability coverage is a standard excluded coverage in almost every policy. The risk of an uninsured pollution event at your facility is more of a possibility than you might think. Our industry is clandestine in its very nature. Tenants store their stuff in your buildings. Think about what might be storedgasoline, cleaners, toner products, toxic materials, etc.
If you have outdoor storage, what about fuel tanks, greywater, and potential ground and water contamination? Have any large RVs parked on your property? If so, you have maybe a 55-gallon fuel tank along with 35 gallons of greywater and another 30 gallons of straight sewageadding up to 120 gallons of potential environmental damage in just one vehicle!
If leaks develop, you may have some recourse against the customer, but only if you have a properly prepared RV- and boat-storage agreement. Otherwise, be prepared to suck up the full cost of a cleanup, which could completely drain your checkbook and life savings.
Even your most long-term tenants could be leading you to a potential environmental nightmare. Cleaners and toner products, gasoline in lawn equipment, and other items on the EPAs hazardous-materials list are probably in many of your units. Pollution liability coverage would cover the onsite cleanup, protect you from any legal liability for the pollution, and provide funds if day-to-day operations were interrupted.
Employment Practices Liability Insurance
Employment practices liability insurance (EPLI) is a vital part of your insurance portfolio. Many aspects of your employer/employee relationship could lead to an EPLI claim, from the initial employment interview to termination of employment and everything in between. These everyday roles can put you at risk. Employees are one of your most valuable assets but can also quickly become your greatest exposure.
Over the past decade, the number of lawsuits from employees and potential employees has skyrocketed. These employment-related claims can result in huge settlements. The financial strain could have a crippling affect on any business.
ELPI is designed to protect your business from such losses. In fact, insurance experts agree that because these types of claims are becoming so common, every business, even if you only have one employee, needs EPLI coverage. Fortunately, the cost of acquiring ELPI is very affordable. The product can be customized to fit your self-storage facilitys needs and should be included in your insurance strategy for complete protection of your business.
Having the right insurance coverages is imperative to the success of every self-storage operation. Some of the specialty coverages mentioned above are not typically available through most traditional business-insurance carriers, so you may need to consult with insurers specializing in the self-storage industry. Your agent can help you evaluate all the commercial coverages available in the market, and recommend coverages specifically for your facility.
Randy Tipton is the owner of Universal Insurance Facilities Ltd., which has provided specialized insurance coverage to the self-storage industry for more than 12 years. Universal has clients in 49 states, with agents trained specifically in self-storage. For more information, call 800.844.2101; e-mail [email protected]; visit www.universalinsuranceltd.com.