At its core, self-storage is a simple business. However, when you examine the operational layers, there are many exposures and risks. Gone are the days when owners could fully protect themselves with typical insurance coverages like customer goods legal liability and wrongful sale liability. There are many other perils that can expose your business to lawsuits and financial harm. Below are eight commercial coverages to consider adding to your policy.
1. Cyber Liability
As corporate data breaches continue to rise and cyber thieves become smarter with more capabilities, you must always be prepared to face a cyber threat. Do you have a plan if a breach happens at your company? Would you be ready to handle a six-figure expense? It’s a highly sensitive issue. People feel violated and worry about how the incident may affect their lives, such as their credit history, privacy, etc.
As a self-storage owner, it’s critical that you’re able to deliver recovery assistance to maintain your reputation and trust with customers. Credit monitoring, public relations, regulatory fines, and legal and defense costs add up rapidly, and without the proper insurance coverage, the impact could be devastating.
Data-breach and cyber endorsements as an add-on to your existing package policy don’t fully address all facets of a cyber-threat claim. An experienced insurance agent will recommend a cyber-liability policy that more appropriately protects your business at a reasonable cost.
2. Employment Practices Liability
Employment-related claims are an exposure to which all businesses are vulnerable. This is true whether you hire trusted managers, a third-party management firm or independent contractors. Furthermore, staff turnover isn’t a telling factor in analyzing the exposure for a potential claim.
Employment-practices claims come in all shapes and forms. The most common relate to harassment and discrimination, especially in light of the #MeToo movement. There are other facets that come into play here, too, and without proper coverage, you could be left confused and paying a hefty price for “self-insuring” any incidents.
Though it’s great to have employment practices liability insurance (EPLI) endorsed onto your portfolio package policy, the following situations are typically not covered by endorsement:
- Wage-and-hour claims
- Third-party claims
- Claims related to the American With Disabilities Act (ADA)
- Defense costs outside the limit of liability
- Breach of contract
Most endorsement coverages are sub-limited and restricted as to the breadth of coverage. Instead, a comprehensive, standalone EPLI policy should be secured to ensure you’re fully protected with limited exclusions. In addition, having an insurance broker who’s able to decipher policy limitations and negotiate terms and conditions is critical, considering the vast differences between policy verbiage from one carrier to the next.
3. Pollution Liability
In self-storage, there are many unknowns in relation to items stored by tenants. Pollution-liability coverage is essential to protect your company against unforeseen lawsuits arising out of damage caused by hazardous materials.
On a standard package policy, pollution removal can be covered (as a property coverage), which will help with costs to employ a contractor and dispose of hazardous waste. However, this must be triggered by a covered cause of loss first, such as a fire. It must not be confused with the liability coverage needed to defend against a lawsuit related to damages associated with such a situation.
Not only will a pollution policy assist with legal costs at the time of a claim, it may help with claims that trickle in after the fact, for example, when a related illness or damage is discovered at a later date. Pollution liability as a standard commercial general-liability exclusion is critical to safeguard your business.
4. Directors and Officers Liability
If you’re in a collaboration or joint ownership with another entity or thinking about joining forces for your next development or acquisition, it’s important to secure directors and officers liability insurance right away, or to review your existing policy for coverages and limitations that may apply. Otherwise, depending on how your business is structured, you’re likely exposing executives, officers and members to risk.
It’s important to have a policy specifically crafted for your needs. The following are a few examples of common scenarios that could arise:
- Accusation of breach of partnership terms and agreement
- Misrepresentations used to entice an investor to enter into contract
- Breach of fiduciary duties
- Mismanagement or misconduct
- Failure to deliver on contract agreement conditions
The question is, how well do you really know the people or group with which you’re doing business? Making smart decisions and approaching a knowledgeable insurance broker to assist with a risk review is worth the time and investment to safeguard your enterprise from a potentially devastating legal matter.
5. Hired and Non-Owned Auto Liability
If you have employees, it’s wise to have hired and non-owned auto coverage. This is a line of liability protection if bodily injury or property damage occur as a result of an employee getting into an accident in his personal vehicle during work hours. There are several situations where this may come into play, and it doesn’t matter if driving one’s vehicle is a direct job requirement. The following could put a storage business at risk:
- Making bank deposits
- Offsite meetings of any kind
- Employees who work from home
- An employee visiting or overseeing duties at another owned site
- Outside sales and marketing efforts
- Mystery shopping a competitor
- Picking up or dropping off a package or mail from the post office
- Picking up breakfast or lunch for a staff meeting
Simply running a personal errand on a lunch break could cause an issue with insurance if the employee says he was on his way to or from work when the accident occurred. That would be enough information for the driver’s personal insurance to deny liability and subrogate against your company’s commercial auto insurance.
6. Roof Replacement Costs
Something that requires special attention is the roof-restricting endorsement property underwriters tend to add to commercial insurance policies. Due to the catastrophic nature of wind and hail claims, insurance companies are attempting to avoid paying for costly roof repair or replacement. It’s becoming common for them to add roof-restricting endorsements to their policies, especially in regions prone to wind and hail. It’s important to review the coverage forms on your policy with an agent who can look out for a cosmetic-damage limitation and an ACV (actual cash value) roof clause.
With a cosmetic-damage limitation, for the policy to cover the loss, a structural engineer’s report would be required to prove the roof was actually disengaged. The policy won’t pay if the damage is considered solely cosmetic. Not only would this leave an owner and his investment unprotected, it could cause a major delay in claim-handling.
The ACV clause states the roof replacement would be depreciated for wind claims. Let’s use this alarming example: The industry typically assumes a 40-year life for metal roofs. Therefore, a 10-year-old roof could be depreciated by 25 percent, and a $500,000 roof claim could result in $125,000 out of pocket. There are many factors involved in the calculation including the gauge of the roof, whether it’s galvanized or painted-ribbed, etc., but the gap in coverage could be significant.
Though the insurance industry is moving toward adding these coverage restrictions as common practice, there are still many underwriters allowing for full replacement cost on roofs. Providing information on roof maintenance will arm your agent with the power to negotiate the removal of these restricting forms. A knowledgeable agent will shop the market and explain the options available.
7. Extended Business Income
There are many hazards that could cause a significant loss of income to your self-storage business, so examine your coverage for loss of income. Most industry insurance policies include it, but it’s critical to review the form in detail with your agent to understand the time the insurance company will allow for reimbursement. Many policies include 12 months. When you consider the amount of time it takes to rebuild a facility and rent up to the level of pre-loss occupancy, one year is usually insufficient.
Some policies allow an increased timeframe to recoup lost income. An increased period of restoration will allow more time for reconstruction. More important, an increased period of indemnity provides an extended period to rent up after restoration is complete. It takes a self-storage operation much longer to regain occupancy than most businesses. Adding this coverage could protect your investment for a nominal additional premium.
8. Ordinance or Law Coverage
Insurance policies intend to make their customer whole after a loss. Replacement-cost coverage means the insurance company will repair or replace the 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 standard policy won’t pay for those; so, it’s important to consider adding ordinance or law coverage.
The older the self-storage facility, the more likely there will be code changes when rebuilding. One example of increased cost-of-construction requirements is ADA compliance. As of March 14, 2012, Title III of the ADA requires specific standards for new or renovated properties. If your facility has substantial damage from a covered cause of loss, your insurance policy could pay for the required updates to be ADA-compliant—if you have sufficient ordinance or law coverage. Typically, your insurance company will offer increased limit options to consider.
From a risk-management perspective, self-storage is much more involved than it first appears. Under the surface of this ever-changing business are facets that require close examination. The above coverages will play a critical role in your satisfaction throughout a claims situation and should be carefully re-assessed from time to time as your company evolves. An experienced self-storage insurance agent will present these coverages to you as affordable options to protect your investment.
Jessica Lamoureux and Lauren Nicholson program managers for the self-storage division of World Insurance Associates LLC, which offers insurance and risk-management solutions to self-storage owners nationwide. The company services more than 200,000 clients from more than 135 offices. For more information, call 860.955.9944; email [email protected].