March 1, 1998

6 Min Read

By Scott Zucker

The following article is reprinted from theMini-Storage Law Commentary, which is published by the lawfirm of Shapiro, Fussell, Wedge, Smotherman & Martin, Suite1200, One Midtown Plaza, 1369 Peachtree St., Atlanta, GA 30309.

The words "fire" and "flood" in the samesentence as self-storage facility is the stuff that makes mostself-storage owners cringe. Unfortunately, no matter how cautiousa facility owner is, there always exists the possibility ofeither a natural occurrence or an unintentional act that canresult in damage to a facility and its tenants' contents.

What is a facility owner to do when such a disaster happens,and what are the issues that the owner will have to face oncesuch a crisis does occur?


From a legal perspective, the self-storage owner must firstlook to the protections it has in place to repair its propertyand to defend itself against claims brought by its tenants forloss or damage to their property.

Hopefully, the facility will have insurance. Every facilityshould have in place some form of comprehensive business andliability policy for its facility that will cover assortedweather risks such as hurricanes, tornadoes, wind and hail. Thepolicy should also cover the facility in case of fire and, whereflooding is a possibility, a facility should consider obtainingspecialized flood insurance.

The insurance policy limits should be sufficient to cover thefacility to the extent of a total loss and, therefore, should becalculated based upon the anticipated cost of replacing theexisting facility. The facility should also purchase coverage forthe loss of use of the facility during the rebuilding process,which is calculated to cover what the lost rental income wouldhave been for the time period the building cannot be used. Somepolicies allow facility owners to extend that lost incomecoverage to cover an additional period of time after the facilityis reopened, taking into account the time necessary to re-rentthe storage units.

If the damage to the facility is only partial, the samereplacement and lost income coverage would apply. Additionally,certain policies may cover the costs associated with operatingonly a portion of the facility while the other portion is beingrebuilt and may include coverage for unusual operating expensescaused by partial use, such as additional security.

What about your tenants claims? Certainly, if the disasterthat occurs is one that could not be controlled by the facility,most leases and rental agreements will protect the facility fromtenant claims arising from the loss of their property.Self-storage leases should contain specific language that thefacility will not be held responsible for the "loss ordamage" to their tenants' stored property. The lease shouldprovide that the tenants' property is to be stored "at theirown risk" and that the facility does not take "care,custody or control" of the property stored.

However, facility owners should be aware that certain stateswill not enforce such exculpatory clauses contained inself-storage leases based on the position that such clauses areagainst public policy and unfair to tenants. Due to the disputeover the enforceability of these exculpatory leases, it istherefore even more important for the facility to require, aspart of its lease or rental agreement, that tenants obtain theirown insurance for stored property to protect their interests inthe property if something happens.

Unfortunately, sometimes when a tenant's property is lost ordamaged, regardless of the cause and even if the proper leaseprotections are in place, a tenant will sue the facility torecover for the loss claiming that the facility was negligent inallowing the loss to occur. This is where customer goods' legalliability coverage comes in. This specialized self-storageinsurance protects a facility from tenant claims arising fromloss or damage to their property. This insurance will defend afacility against the lawsuits that may arise from the claims andwill cover the court costs and payments to the tenant if suchpayments are warranted or awarded by the court.

Self-storage facilities should be aware of the fact thatstandardized comprehensive and business liability policies willlikely not cover tenant loss and damage claims. Therefore, thistype of specialized coverage is usually needed for this type ofunique protection.

With respect to your insurance coverage, there are certainthings you must do that will probably be required under yourinsurance policy in order to be covered when a facility lossoccurs:

1) Contact your insurance company. Many insurancecompanies will not be obligated to cover your claims if they arenot given reasonable notice of the occurrence and have a chanceto investigate it. Contact your claims agent by phone and thenfollow up in writing.

2) Mitigate your damages. After a loss occurs, it isincumbent upon the facility owner to protect the property (andthe contents) from further damage. Therefore, cover or board upareas that remain open to the elements and rope off damaged areasto protect against theft, even go so far as to hire temporarysecurity if necessary.

3) Prepare a record. At the time the loss occurs, it isimportant to fill out an incident report and additionally takeany photographs or videotape footage that would document the lossand your efforts to mitigate further damages.

Dealing With Tenants

It is crucial once a situation occurs at your facilityresulting in damage to your tenants' property that the tenantsaffected be notified immediately. Notice should be made bothwritten and by phone to the tenant's last known address. Thenotice should explain what occurred at the facility (notnecessarily the cause), and that the tenant is asked to come tothe facility to claim his goods. Access to a tenant's goodsusually can be given unless the damage is such that it would bedangerous for the tenant to enter the facility property. Thewritten notice should recommend that the tenant notify hisinsurance company once his loss is determined. It is important tocommunicate with your tenants as much as possible, but at no timeclaim responsibility or agree to pay for a tenant's loss. If thetenants do submit claims, the facility should pass those claimsalong to their insurance company.

Handling the Media

The public-relations nightmare that might result from adisaster may actually be the worst part of dealing with such anoccurrence. However, it is often better to first prepare astatement for release to the media rather than shooting from thehip in response to reporters' questions. In a situation where thecause of the damage is unknown and claims will be made againstthe facility, a prepared statement is essential to avoid anycomments made that later could be used as admission against thefacility. Although cooperation with the media is important, beaware of the circumstances surrounding the incident. Do notinvite media attention to your facility unless the story to betold is of a positive nature. Be careful not to sensationalizeincidents that may occur at your facility. Remember, it is notnecessarily true that any publicity is good publicity.

Certainly, any unusual occurrence at your facility can betroubling, but a disaster is much worse. Remember the protectionsafforded you by our role with the media. The only approach youcan take when disaster strikes is to try to make the best out ofa bad situation.

Scott I. Zucker is a partner in the Atlanta law firm ofShapiro Fussell Wedge Smotherman & Martin, LLP. A frequentcontributor and Inside Self-Storage speaker, Mr. Zuckerspecializes in self-storage law and construction litigation. Hemay be reached at 1360 Peachtree St., Suite 1200, Atlanta, GA30309; phone (404) 870-2200; e-mail [email protected].

Editor's Note: This article is to provide generalinformation only and is not intended to provide legal advice.

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