December 1, 1997

14 Min Read
Insuring Your Facility

By David Wilhite

Insuring Your Facility

One of the most difficult and confusing tasks associated withrunning a profitable self-storage facility has always been theneed to secure proper insurance coverage. Unlike many othercommercial ventures that consider insurance a simple cost ofdoing business, the multiple property and liability exposuresspecific to the self-storage industry place an uncommon emphasison the need to secure comprehensive coverage to meet unexpectedhazards.

Consider this: In addition to protecting your buildings andequipment against common hazards such as fire, flood, wind,vandalism, etc., you must also insure the safety of your tenants'property. In addition, you need to guard against liability suitsfiled by tenants who have been injured while on your premises,and property damage to tenants' property such as a gate closingon a vehicle. Furthermore, due to the physical nature of astorage facility, you must secure protection for your incomeagainst business interruptions that occur after a loss. There aremany other important coverages of which you must be aware, suchas the need for workers' compensation, as required by common law.

Here is an overview of the major coverages you need to securein order to adequately insure your self-storage operation:

Business Property

This coverage protects your property from direct physical lossor damage. It includes replacement costs on buildings andbusiness/personal property with no coinsurance.

Loss of Income

This coverage protects your income from direct physical lossor damage to business property. Protection against businessinterruption and extra expenses are also provided under thiscoverage.

Comprehensive Business Liability

This coverage provides coverage for bodily injury and propertydamage that occurs on your premises.

This coverage provides broad-form coverage to protect youagainst negligent acts that arise from the sale, removal ordisposal of customers' property when reclaiming space for whichrental or other charges are delinquent or unpaid.

What a Specialty Agency Can Do for You

Although there are currently more than 25,000 self-storage facilities across the country, until recently no insurance company has offered every one of the coverages necessary to meet all of the unique needs of the self-storage industry, including such specialized coverages as flood insurance and workers' compensation.

In 1994, Universal Insurance Facilities Ltd. introduced its Self-Storage Insurance Program, which provides all of the property and liability coverages self-storage owners need in a single, affordable package. We recently spoke with William Mattern, Universal's Self-Storage Insurance Program Manager, about the company's program and its plans for the future.

Can you tell us a little bit about how your program got started?

Our goal from the very beginning was to make it easy for self-storage owners to insure their facilities by offering a comprehensive yet affordable insurance package. One of the most difficult jobs facing every self-storage owner has always been the need to secure adequate insurance coverage. Besides protecting your buildings and equipment against fire, wind and vandalism, you also need to insure the safety of your tenants' property. Plus, you need to protect yourself against liability suits filed by tenants injured while on your premises,and tenants' property-damage lawsuits. You also need to protect your income against any business interruptions that occur after a loss. And there are other important coverages that are required by law, such as workers' compensation, that facility owners need to be aware of. Our program makes it easy for facility operators to get the most complete, current and comprehensive insurance coverage ever offered to the self-storage industry.

This coverage provides broad-form coverage against loss ordamage to your customers' personal property, if you are legallyliable. It also provides defense and legal costs even if the suitis groundless or fraudulent.

Flood Insurance

This coverage provides broad-form coverage against loss ordamages arising from floods to your property and your customers'property. Interestingly enough, this coverage is available toself-storage facilities even if they are located in a floodplain, so you can be assured of coverage even if your facility isin a high risk area.

Workers' Compensation

In nearly all 50 states, you are required to cover youremployees under workers' compensation. If, for example, you failto warn employees of any existing danger, under both common andworkers' compensation laws, you can be held liable for damagesuits brought on by an employee. Therefore, this very importantcoverage must be considered a mandatory part of your self-storageinsurance package.

Choosing the Insurance Company That's Rightfor You

As a responsible self-storage facility owner, you know thatsecuring the right insurance coverages can help reduce youroperating risks and protect your assets. That's why you've takenthe time to evaluate your exposures and worked with your agent orbroker to choose the coverages you need to protect yourself inthe event of a loss- especially a catastrophic loss. But if youwant to get the best insurance protection, you need to do morethan just choose the right coverages- you also need to choose theright insurance company.

Why is it important to choose the right insurance company?Because if you don't, you won't know how a particular company'sgoing to perform until you have a loss- and by then it may be toolate. You don't want to discover after a disaster that yourcarrier has a history of poor claims handling, or that it'sfinancial standing is in jeopardy. And there are other advantagesto choosing the right insurance company that can save you moneyand get you the specialized coverages you need to better protectyour facility.

Choosing the insurance company that's right for you is easywhen you have the proper information. Here are the three mostimportant things you need to know when considering an insurancecompany:

1. The Company's Financial Strength

2. The Company's Claims Performance

3. The Company's Specialized
Knowledge of Your Business

Financial Strength

An insurance company's financial strength reflects its abilityto meet its obligations to its policyholders- in fact, financialstrength is the very cornerstone of the promises that insurancecompanies are built upon. Therefore, in order to determine if aninsurance company will be able to meet any claims you make, youneed to know if it has a solid balance sheet. The easiest way todo this is to check the rating report of an independent insuranceindustry analyst, such as the A.M. Best Company.

A.M. Best has been reporting on the financial condition ofinsurance companies since 1899 and ranks as the oldest and mostexperienced rating agency in the world. A Best's rating isassigned to every major insurer operating in the United Statestoday after carefully evaluating each company's performance infive critical areas: profitability; leverage; liquidity; reserveadequacy; and reinsurance.

Best ratings range from A++ (superior) all the way down to F(in liquidation). Although a solid Best rating is not an actualguarantee of a company's financial strength, it is a strongindicator that you will receive prompt and fair claims handling-both today and in the future.

Claims Performance

Claims performance is the make or break factor that separatesa good insurance company from a great one. Each year millions ofbusiness owners file claims with their insurance companies thatmay be subject to careless handling and needless delays. And asanyone who has ever suffered a loss can tell you, the trauma of afire or theft is stressful enough without having to worry aboutyour insurance company's performance when servicing your claim.

What should you expect from a reputable insurance company whenreporting a claim? Fast, fair claims handling and courteousservice. First, a responsive company should contact you within 24hours of receiving your report to begin the settlement process.Second, the company should make every attempt to dispatch aclaims adjuster to inspect any property damage within 48 hours ofreceiving your claim (the best companies will often dispatch anadjuster within the hour). Third, and most importantly, thecompany should attempt to make the claim settling process assmooth as possible, avoiding unnecessary questions and issuingpayment without delay.

Specialized Knowledge of Your Business

In order to protect your assets, an insurance company (and itsbrokers and agents) must have specialized knowledge of theself-storage industry, as well as a commitment to stay abreast ofindustry changes through education and training. Moreover, aconcerned company will also be able to recommend measures thatwill help you safeguard against losses as well as provide youwith the coverages you need to protect your facility.

Some insurance companies have developed specialized coveragesfor the self-storage industry that not only provide superiorprotection but can actually contribute to lower premiums. Acompany that is very familiar with current construction costs, orthat has in-depth knowledge of the latest keyless securitysystems, for example, can more realistically handle any claimsyou may have as well as provide you with the proper coverage inthe first place. Look for a company that will work with you tohelp reduce losses in the workplace, which in turn can helpcontain your insurance costs.

Understanding and Controlling Liability Losses

Business liability insurance is designed to protect youagainst claims that someone was hurt, or property was damaged, onyour premises And as every self-storage facility owner knows,recognizing and controlling liability exposures is a primeconcern in today's litigious society. Merely having coverage inplace is not enough. Today's courts are getting tough on businessowners who allow hazardous conditions to exist, and judging bythe awards juries sometimes hand out, no amount of protection maybe enough.

Take Pro-Active Action

The single most important key to protecting your self-storagefacility against liability lawsuits is awareness: awareness ofyour responsibilities under the law, awareness of potentialhazards at your facility, and awareness of your need to doeverything a prudent person would do to prevent accidents. Courtdecisions can and do favor those who take pro-active steps; andin the case of a lawsuit, an ounce of prevention is definitelyworth a pound of cure.

Reduce Potential Liabilities

The best way to limit your liability in advance is byidentifying and eliminating (or at least minimizing) potentialrisks. Take a walk around your facility and play "Whatif..." where you try to imagine what can go wrong, and whatyou can do to safeguard against those situations occurring. Forexample, you may discover a glaring hazard, such as a largepothole outside of one of your storage units, that needs to beblocked off and covered. Or you may chance upon a less obviousrisk, such as a worn or curled floor mat, which was intended toprevent slips and falls but may actually cause them.

Remember that a potentially dangerous situation can be createdin an instant by a careless employee in the normal course of hisor her work; for example, by leaving a wet floor unattended for afew moments while mopping up. Courts can and will hold managementresponsible for the actions of their employees in thesesituations. Once again, a pro-active response is the key; in thiscase, by advising third parties of a specific risk by posting a"Caution! Slippery When Wet" sign in the area beingcleaned.

There are several other important procedures for reducingliabilities that can help prevent lawsuits, including conductingaccident training sessions with your employees; conductingregular quality-control measures of your facilities andequipment; and keeping documented records of preventivemaintenance. Be sure to hire competent employees and regularlymonitor their performance. If you are not at the facility on adaily basis, make a practice to drop by periodically withoutnotice in order to spot unforeseen risks.

A Note On Preventing Slips and Falls

Since slips and falls account for the vast majority ofliability claims, it pays to be extra careful about preventingthem. Slippery floors from rain and snow are the leading cause oftenant falls. You can reduce your liability substantially whenyou take reasonable and prudent care to prevent accidents. Beginby keeping floors dry. In bad weather, put up "caution"signs when the floor is wet; install non-skid moisture-absorbingcarpet or mats; and keep a mop and bucket handy to controlrunoff.

What to Do When an Accident Occurs

No matter how carefully laid your plans may be, accidents canand do occur. If someone on your premises should suffer aninjury, take immediate action by first calling an ambulance forthe injured person, then document all known facts surrounding theaccident in order to accurately reconstruct the events in case ofa lawsuit. For safety's sake, be sure to get all of the followinginformation in writing:

  • Name, address and phone number of injured party;

  • Date and time of the accident;

  • Name of employee(s) on duty and name(s) of any witnesses;

  • Details about what caused the accident; (i.e., was it caused by the customer or by a pre-existing hazardous condition?)

  • Information about when the site was last cleaned and inspected for hazards.

  • It's also a good idea to take a picture or video footage of the site where the accident occurred, and to try to get a written statement from the injured party, if possible. And if a trip to the hospital is necessary, call an ambulance- don't use a personal or company vehicle. You may expose yourself to a whole new set of liabilities that are much better avoided.

What to Do in the Event of a Claim

  • In the event of an accident, notify your insurance company immediately. Give your agent all of the information outlined above. If you are hit with a lawsuit, the number and nature of available defenses depends upon the specifics of the individual suit. In an injury-related action, the underlying claims must be analyzed to determine available defense; while in negligence cases, the owner may be able to assert the claimant's degree of fault, which could reduce or even eliminate his right to recover damages. Assuming the circumstance is covered, your insurance company will come to your defense.

  • One final note: In today's litigious society, aggregate liability limits of $1 million or more can no longer be considered unreasonable. For maximum protection, look for a business liability policy that is written on an occurrence basis with no aggregate limit.

Evictions and Auctions: Limiting YourLiability Exposure

The self-storage business is a rental business; the facilityoperator acts as a landlord, not a warehouseman. Unfortunately,sooner or later every self-storage owner will be faced with thetask of having to evict tenants for failure to pay their rent,and reclaim the storage space by removing or disposing of thetenant's property. The most common way to do this is to place alien against the property and hold an auction.

In general, most states give self-storage operatorsextraordinary leverage against delinquent tenants. However, ifthe procedures are not followed to the letter, or if there is anerror in any step of the sale and disposal process, theself-storage operator leaves himself vulnerable to lawsuitsclaiming loss or damage of stored goods. Even when the process ishandled correctly, it is not uncommon for a disgruntled tenant tofile a claim against the operator charging negligence in theremoval or disposition of stored property.

Sale and disposal legal liability insurance is a must-havecoverage for all self-storage owners that provides protectionagainst conversion: the act of wrongfully taking, selling, usingor destroying the goods of another party. Due to the diversity ofgoods commonly stored and the wide range of values of theproperty, the penalty for conversion can be extremely high.Recently a self-storage operator was held liable for $250,000 indamages 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.

The good news is that in most cases lawsuits can be avoided.Start by familiarizing yourself with lien laws. Consult with anattorney about preparing a written procedure that outlines theexact steps for disposing of a delinquent tenant's property. Readand follow all state statutes to the letter. Always double checknames and addresses, and don't make any changes to information onthe rental agreement, such as correcting an obvious misspelling,unless accompanied by a signed change of address card. Document,in photographs and writing, every step of the inventory andauction process. In a lawsuit, you will have to show proof thatthe disposal of the delinquent tenant's goods conformed to statestatues.

Finally, if there is any reason to question the sale anddisposal of a tenant's goods- don't hold the auction. Many ownersprefer to let tenants retrieve their property at no charge,rather than go through the potential liability of an auction (itis certainly preferable to defending yourself in a lawsuit). Andbe absolutely certain you have adequate insurance coverage. Saleand disposal legal liability insurance is not normally availablethrough regular business insurance carriers and generally cannotbe added to a standard business-owners policy. However, thecoverage can be secured through insurers specializing in theself-storage industry.

David Wilhite is the marketing manager of UniversalInsurance Facilities Ltd. Universal offers a complete package ofcoverages specifically designed to meet the needs of theself-storage industry. For more information on Universal'scoverages, contact Universal Insurance Facilities Ltd., Box 5400,Scottsdale, AZ 85261-9957; phone: (800) 844-2101; fax: (602)970-6240; or Web site:

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