By Mike Schofield
Sitting down with your insurance agent to discuss the policy for your self-storage business can be an overwhelming prospect. There are many types of coverages, and the unfamiliar terminology and legalese can be confusing. With that in mind, here’s some simple insight to the property and liability coverages that are vital for the protection of your operation.
Customer-Goods Legal Liability
Your self-storage insurance policy should include specialty coverages that specifically address exposures unique to self-storage operations. Customer-goods legal liability provides coverage against loss or damage to customers’ personal property for which the self-storage business may be legally liable. For example, it would cover damage to a tenant’s belongings caused by rain that entered the unit via an unrepaired hole in the roof.
Sale and Disposal Liability
Sale and disposal liability coverage protects self-storage operations against liability claims by customers for loss to their stored property due to the sale, removal, or disposal of the property. For example, this might be the result of a lien sale or other covered cause of loss.
Unfortunately, business owners in most industries face the prospect of lawsuits. Self-storage owners are particularly vulnerable due to the involvement of tenants and their stored belongings. Umbrella liability coverage provides an additional layer of protection over and above the liability section of your commercial insurance coverage. It’s critical in the event of a disastrous claim against you that would exceed the liability limits of your other policies.
Business-income coverage protects your storage operation’s income in the event of a loss requiring reconstruction. A typical policy provides regular business income and extra expenses incurred for 12 to 15 months, plus additional time following reconstruction while storage spaces are being re-rented. Some policies offer options to extend the coverage for 18 to 24 months. This coverage can be the deciding factor on whether your business survives a catastrophic event.
Building-ordinance coverage offers protection if structures at your facility are damaged to the extent that local building codes or ordinances require the remaining structure be demolished and rebuilt to meet current codes. Without this coverage at an adequate limit, you face a potentially catastrophic financial exposure in the event of a triggering incident.
Wind/Hail Deductible Buy-Back
Percentage deductibles have been implemented by insurance carriers in geographic areas prone to catastrophic wind and hail claims. In fact, deductibles of up to 5 percent are becoming increasingly common in the most challenging locations. Not only does this practice mean a facility owner may be faced with large out-of-pocket expense, it may violate the terms of the mortgage agreement. This may place a ceiling on the deductible. A standalone wind/hail deductible buy-back program enables the deductible to be lowered to a certain percentage or specific dollar amount.
The one characteristic common to all types of equipment is breakage. Anything mechanical is eventually going to fail. Systems-protection coverage—sometimes referred to as boiler and machinery coverage, or equipment-breakdown coverage—is widely available to address these types of losses. This coverage commonly includes items such as heating and cooling equipment, computer systems, surveillance equipment, electronic gates, phones, and other systems.
Dishonest employees, although thankfully in the minority, can cause business owners a lot of trouble. Employee-dishonesty coverage covers any loss of money or other business personal property belonging to the insured by deceitful or fraudulent acts by employees. In addition to ensuring your policy includes this coverage, it's wise to mitigate the risk by completing a thorough criminal background check on all new staff and conducting a detailed audit each year.
Data Compromise and Identity Recovery
Incidents of cybercrime and data breach are on the rise, leaving expensive lawsuits and unhappy customers in their wake. Two coverages to consider are data compromise, which protects businesses, and identity recovery, which protects individuals.
Data-compromise coverage helps self-storage businesses respond to events such as electronic theft (hacking), theft of computer systems, data theft by employees, accidental publishing and procedural errors. It also protects against fraud by providing services to include forensic information-technology reviews, legal assistance, credit monitoring, identity-restoration services, and notifications to affected individuals.
Identity-recovery coverage provides case-management service and expense reimbursement in the event of certain instances of identity theft or data breach of sensitive customer information. Cyber liability can be costly due to legal fees and other expenses. It’s highly recommended to seek an insurance agent's counsel in identifying your specific needs.
While not an element of a commercial insurance policy, tenant insurance offers important benefits for self-storage owners. It’s been proven to reduce the owner’s liability exposure in the event of tenant loss, which is a critical element of risk management. In addition, some programs include coverages that directly protect the facility as well the tenants. To increase a program’s effectiveness as a risk-management strategy, consider making tenant insurance mandatory and require that tenants provide evidence of insurance.
These are only some of the coverages available for self-storage businesses. Your insurance agent is your primary resource for coverage analysis and recommendations about changes to your policy. Keep in mind that the total insured value of your business is another critical factor. Insuring your facilities for their replacement cost value is an important step in protecting your business investment from costly, and perhaps devastating, financial exposure in the event of a catastrophic loss.
Mike Schofield is CEO and president of Phoenix-based MiniCo Insurance Agency, a provider of specialty insurance programs for self-storage businesses in Canada and the United States. For more information, call 800.528.1056; visit www.minico.com.