By Toby Struewing
A self-storage facilitys insurance needs are different from those of many other businesses. While the basic commercial insurance coverage for property and general liability is still important, several specific options highlight the unique requirements of the storage industry.
One key distinguishing characteristic is the storage professional has a responsibility for customers goods and property being stored within his building(s). Facilities that store other peoples belongings need specialized insurance solutions tailored to their situation. Heres a list of coverage options every self-storage operator should consider and ultimately purchase.
Sale and Disposal Legal Liability
This coverage provides protection if a tenant defaults on rent and you need to dispose of his stored property. There could be a dispute if the tenant claims the goods were disposed of improperlyor if the wrong property was removed. This coverage will protect you against legal actions and pay damages up to policy limits and subject to policy terms, as long as youre in compliance with lien laws applicable in your province.
Unlike in the United States, theres a significant problem in Canada in that most provinces/territories have yet to establish appropriate lien-law legislation specific to the self-storage industry. As a result, facility operators are left to interpret other acts designed for related but not identical industries. At the time of this writing, there are steps being taken to remedy the situation, and theres hope to see more specific lien laws in coming years. This has been an ongoing pursuit of the Canadian Self Storage Association, but Canada-wide legislation is still years away, given that it has to be passed in each province/territory individually.
For risk-management and loss-reduction purposes, self-storage professionals should work closely with their insurance broker and lawyer to review their local lien laws and ensure the contract wording in their rental agreements is clear and consistent. Also, there needs to be a standard internal procedure regarding notification and process of pending sales. Ideally, the procedure to follow in the event of delinquency should be addressed completely in the rental agreement. Its critical these procedures are followed to the letter to avoid being taken to court. If charges are laid, the odds of winning a court battle greatly improve.
Assuming youve purchased sale and disposal legal liability and followed the terms and conditions of the policy, legal costs and damages will be paid by the insurance company up to the policy limits. Limits ranging from $10,000 to $250,000 are common for this coverage.
Operators Legal Liability
Another key coverage for self-storage professionals is operators legal liability. This insurance defends and protects operators from claims for goods that are lost or damaged while in storage. For example, a tenant may have valuable goods or property that has gone missing so they initiate a lawsuit against your facility.
A common issue facility owners see is water damage to contents, with the tenant claiming the storage operator is at fault. This coverage will pay the legal defense costs and damages for legal liability up to policy limits. In theory, its designed to pay a tenant only when the storage operator or employees are negligent. Typical limits available for this coverage range from $100,000 to $5 million depending on the number of units within a facility and the estimated value of the tenants contents.
One good way to mitigate this risk is to actively educate and inform renters about tenant insurance. This broad form of coverage allows tenants to cover their own property and goods for most losses at affordable rates and low deductibles. Its an excellent way to avoid disputes and legal actions regarding liability for damaged or lost property. It also provides peace of mind for facility operators, employees and tenants.
Most tenant-insurance programs allow tenants to choose the appropriate limit for their contents in storage. Its common to see the limits range from $2,000 to $30,000, and sometimes higher limits are available.
Tenant-Contents Abandonment
This specialty coverage addresses tenant-contents abandonment. Its designed to handle proper removal and disposal of environmentally sensitive or dangerous substances abandoned by a tenant. Again, it will cover costs associated with removal and disposal up to the policy limits and subject to policy terms and conditions.
To reduce this risk, self-storage professionals should have standardized rental-agreement language that prohibits storage of flammable, combustible, corrosive, toxic, unstable, explosive or poisonous materials. The agreement should also restrict activities of a hazardous nature, such as welding or woodworking. Many storage facilities are now incorporating surveillance cameras with digital recording as another way of monitoring the activities of their tenants.
Finding the Right Coverage
While these specialized insurance coverage options are vital to self-storage, owners should also consider comprehensive property, liability, business income/interruption and crime-protection insurance tailored to their facilitys specific needs. Issues like crime, personal injury of tenants on site, and fire and water damage also need to be addressed through a comprehensive risk-management and loss-prevention program. This kind of program should be one of the value-added factors your insurance broker provides.
In fact, self-storage professionals should consider several factors when looking for the right insurance partner for their unique needs. These include:
- Qualified assistance in evaluating exposures operators face
- Advice on how best to manage risks from physical facilities and through contracts
- A simplified underwriting process for securing quotes for coverage
- Broad coverage, competitive rates and low deductibles
- Services tenants can access to obtain insurance coverage on their unit contents
- Access to risk-control services to assist in mitigating physical risks on site
- Industry experience and expertise
- Reputable and financially secure insurance company and brokerage
Your self-storage facility is unique in its possibilities and risks. Your insurance solution should reflect that uniqueness and respond with a clear understanding of your exposures and specialized coverage that fully protects your facility.
Toby Struewing, commercial account executive for Cowan Insurance Group, is a specialist in Canadian self-storage business insurance. To reach him, e-mail [email protected].
