Insurance Insights

Our industry has changed a lot in the last 30 years, with the addition of ancillary products and services. Self-storage is certainly evolving.

The business itself is defined similarly by many state laws. For example, in Kansas, self-service storage facility means any real property used for renting or leasing individual storage spaces in which the occupants themselves customarily store and remove their own personal property on a self-service basis.

Now a few states have amended their laws to reflect the evolution into mobile self-storage. For example, the lien law in California is similar to that of Kansas, but its definition includes the addition, or for storing individual storage containers provided to occupants who have exclusive use of the container for the purpose of storing and removing personal property.

In addition, many storage facilities are expanding their operations to include services such as:

• Auction sales (like eBay) 
• Boat and RV storage 
• Car washing 
• Packaging and mailbox services 
• Records storage 
• Retail products (boxes, packing material, locks) 
• Truck rentals 
• Wine storage

Ancillary services in self-storage are becoming more common because they help increase revenue and, in some markets, provide a competitive advantage to attract and maintain a facilitys customer base. Unfortunately, theres something else the above services have in common: Theyre not self-storage and, hence, may not be covered as part of your insurance program.

Insurance rates, underwriting rules and policy language vary between insurers. Several companies have developed coverage specifically to insure common self-storage risks. These policies may include language that will limit or exclude coverage for property or liability exposures presented by a given ancillary service.

This is not to suggest policies developed for self-storage are more restrictive than a generic business-insurance policy. On the contrary, the generic policy will typically exclude coverage for the self-storage owners legal liability for loss or damage to customers stored property or for the defective sale or disposal of property during the course of a lien sale. These coverages are picked up by the self-storage specialty policies.

An important step in your evaluation of the costs and benefits of starting any ancillary service is to disclose and discuss the prospective operation with your insurance agent or company. You will learn one of three things:

• The policy will provide coverage for property and/or a liability exposure of the ancillary service by endorsement without an additional charge, or coverage is already included under the policy without additional charge or endorsement.
• The policy can be amended to insure the ancillary risk by endorsement at an additional charge.
• The policy does not provide and can't be amended to include the risk of ancillary service. In this case, you or your agent will need to insure the risk through a separate policy or accept the risk of loss without insurance. (This latter assumption of risk is often referred to as self-insurance.)

Three of the most common ancillary services (retail sales, boat and RV storage and wine storage) are often picked up by the insurance company without additional charge.

However, depending upon how these services are handled by the facility, there may be exposures that require additional fees or coverage problems for your insurance. Selling quality locks can be good business, for example, but keeping duplicate keys, masters or records for key replacement can create an unwanted liability exposure in the event of a security breach.

Many state laws have different procedural requirements for the sale or disposal of licensed vehicles in the event of delinquent rent than those for other property in self-storage. Providing related maintenance services such as cleaning, battery service, fueling or valet assistance creates liability exposures not typically contemplated by the selfstorage policy; you many need a separate policy to cover vehicles while in your care for servicing. The language in a typical self-storage agreement may be inappropriate for boat and RV storage and should be modified by addendum or separate agreement.

Just like any customers personal property placed in self-storage, wine bottles are covered under the customer goods legal liability coverage of a specialty policy. This will pay for damage to customers stored property for which you are held legally liable but will typically exclude contractual liability. Also, be careful about making warranties or guarantees about property stored in climate-control units. Check with your insurer before assuming legal responsibility.

Onsite car washing or packaging, shipping and mailbox services are not often insured without modification to the self-storage insurance package policy, but policies can often be endorsed to extend liability coverage for them. Unlike storage of property or product sales, these services often include handling and servicing of customers goods. The liability risk associated is significantly higher, and an additional charge will be made by the insurer to eliminate typical care, custody and control exclusions common to a self-storage policy. (Note: Exclusions of liability for damage to property in your care, custody and control are eliminated with respect to customers stored property under the customers goods legal liability coverage.) 

Licensed vehicles, such as trucks and trailers, are insured by a very different policy than those that insure buildings or general business operations, much as the fire and liability insurance on your house is usually separate from auto insurance. Insurance for trucks or trailers rented or loaned to customers is typically not included or even available by endorsement. These are often handled through separate franchise or leasing operations providing the best and most cost-effective insurance protection for this exposure.

Finally, records-storage and auction-sales services are beginning to generate more interest as profitable ancillaries. These are not new, but they, too, are not self-storage. Some insurers have developed separate policies for these unique liability exposures. Coverage is not typically available through endorsement but is through separate policies.

If these services become more prevalent in combination with traditional self-storage, its likely that insurance companies will adapt policies to insure them under a single policy. It looks like the industry will continue to grow, prosper and evolve to meet all these needs, just as it has over the last three decades.

Scott Lancaster started his insurance career in 1976 as a licensed insurance agent and broker in California. He is now the regulatory compliance officer for Deans & Homer, where he was hired as a commercial lines property and casualty underwriter in 1985 and has worked in the self-storage division since 1993. Deans & Homer has been providing insurance products designed to respond to the unique risks of the self-storage industry since 1974. For more information, call 800.847.9999 or visit www.self-storage-insurance.com.