Understanding Workers' Compensation Insurance and Its Importance to Your Self-Storage Business

By Jenny Bortman and Randy Tipton

Accidents occur in even the safest and cleanest work environments. This is why every self-storage owner should carry workers’ compensation insurance, also known as workers’ comp. This coverage is designed to ensure that employees who are injured or disabled while on the job receive proper compensation and medical care, negating the need for lawsuits, regardless of who’s at fault. Another benefit is dependent coverage for workers who are injured or killed in a workplace accident.

Workers’ comp is required in nearly every state, though laws and requirements vary. In some cases, businesses that meet certain requirements must provide workers’ comp for their employees or face fines and other serious consequences.

With many different coverages and policies available, knowing what you need to protect your self-storage business can be overwhelming. First, understand that general-liability coverage has exclusions relating to the injury of anyone who’s an employee. This exclusion applies to your business if your jurisdiction requires worker’s compensation, whether or not you have a policy. With that in mind, coverage must be considered a mandatory part of your insurance portfolio. Let’s examine a few other key points to consider in regard to your workers’ comp options.

Industry-Specific Challenges

Procuring workers’ compensation insurance for self-storage facilities can present its own set of challenges. If a manager lives on site, some carriers won’t cover this type of risk because they categorize it as 24/7 coverage. Even if a resident manager is considered “off the clock,” the possibility for a claim exists if an incident occurs.

For example, if a vehicle crashed into the gate after hours, the resident manager would probably investigate to see what happened. If he was injured while helping the driver of the vehicle or fixing the gate (or any variety of other scenarios), the injury would very likely be considered covered under a properly written workers’ comp policy.

The real challenge comes in determining who qualifies as an “employee.” The definition continues to evolve, but essentially, an employee is someone hired to perform services under the direction and control of another person or company, known as “the employer.” A rule of thumb is an employer is any person or entity who gives direction to and exercises control over a worker.

This also means that if you hire an independent contractor, he could be considered an employee for the purposes of coverage under your policy, even if he isn’t technically on your payroll. This is an important reason to work with an insurance agent who specializes in self-storage and can work with the insurance company on your behalf.

When hiring a licensed contractor or vendor, try to verify that the work and materials used will be of high quality and the workers competent. While most outsourced labor will meet this criteria, misfortunes can happen to the most reputable companies. Accidents that result in property damage or injury to your clients, employees or the general public sometimes occur. For this reason, it’s imperative to protect your business by hiring contractors and subcontractors who have proper insurance coverage.

Get references from past clients and request a certificate of general liability and workers’ compensation insurance from the vendor. Remember, any vendor you work with should be licensed, bonded and insured with adequate limits. In some (if not most) cases, you should get proof of coverage and be listed as an “additional insured” on the vendor’s policy as it relates to the specific project.

Although hiring friends and family may be less expensive than paying a vendor on some projects, if you choose to go this route, make sure you follow the same protocols as you would for any other contractor. Whether it’s a friend, family member or business partner, an injury at your facility could become costly and cause hard feelings between all parties. Maintaining the proper insurance coverages is an important aspect to running a successful business.

Cost of Coverage

The cost of a workers’ comp policy is based on several factors including payroll, class code, experience modifications and number of employees. It’s also an auditable policy, so if you underestimate your payroll, you’ll likely owe additional premiums at the end of the year. In addition, if you don’t complete all of the necessary audit forms, the carrier will create its own calculation, which will probably result in an additional premium. However, if you overestimate your premium, the carrier will apply a credit to the following year’s insurance renewal, reducing the total cost.

To help offset some costs, most self-storage owners exclude themselves from coverage. This is done primarily because business owners wouldn’t turn in this type of claim against themselves. Since the premium is based on annual payroll and number of employees, eliminating the owner can lower the premium. Typically, most owners would prefer to use their own healthcare benefits for coverage in the event they sustain an accident or injury, which can save premium dollars. Be sure to include any friends or family working for you part- or even full-time, as they should and will be considered employees.

There are several different ways to pay for coverage. You can pay in full, or some carriers have created pay-as-you-go billing options, in which charges are based off real-time payroll. Depending on your circumstances, this may be a great solution for you.

Choosing a Carrier

When deciding on an agent to help you with your insurance coverage, find a carrier experienced in handling claims. Your business relies on staff showing up to work healthy. If an employee gets hurt on the job, you want him to recover and return as soon as possible. The way a claim is handled could impact how soon that employee gets back to work.

Not only do you want a carrier that is responsive, look for one with access to a wide variety of healthcare networks experienced in treating workplace injuries. Other considerations are access to pharmacy benefits and other types of care, including physical or occupational therapy.

Workers’ compensation insurance is a vital, reasonably priced product that should be purchased if you have one or more employees. Although state laws vary, the general-liability exclusions of employee injuries means workers’ comp coverage must be considered a mandatory protection for your business. Don’t put your self-storage operation at unnecessary risk.