Your new neighbor has asked you to store a few heavily taped boxes and a sealed, 40-gallon drum full of something liquid in your garage for a month or two. He assures you there’s nothing harmful in any of the containers but he appreciates your discretion. He even offers to pay you a few bucks for the favor. Sounds like an interesting business opportunity, doesn’t it?
The self-storage industry has technical, legal and financial aspects not found in any other business. These unique characteristics make it necessary for facility owners to have specialized insurance coverage. While standard business policies provide protection for buildings, business personal property and general liability, a self-storage policy should help guard against industry-specific hazards. The following explains the programs you need to protect your business and minimize your risk.
Customers’ Goods Legal Liability
When you own a self-storage facility, you act as a landlord, not a warehouseman, because you never take possession of tenants’ goods. You aren’t responsible for those belongings—you’re simply renting space. However, there are certain situations that can create legal liability on your part.
For example, by providing a building in which to store goods, you represent protection against the elements. If your customers’ property is damaged because you didn’t properly maintain the facility, they may feel you were negligent in honoring that representation. If you’re found negligent, you’d be liable for damage to their property. Customers’ goods legal liability protects you against these kinds of claims. It might also provide defense costs, even if a claim is found to be groundless, false or fraudulent.
Sale and Disposal Liability
Sooner or later, every self-storage owner will be faced with the unenviable task of executing a lien against a tenant for failing to pay rent. You’ll take steps to reclaim their unit and remove or dispose of their property.
Nearly every state has specific statutes governing the sale and disposal process. However, if the procedures aren’t followed exactly, even if there’s just a small error, you may be vulnerable to a lawsuit claiming loss of or damage to stored goods. Due to the incredible diversity of items stored and the wide range of the property value, the penalty for conversion can be extremely high.
Sale and disposal liability coverage helps defend you against claims arising from the negligent sale, removal, disposal or disposition of a customer’s property. It further provides for defense and legal costs, even if a tenant’s suit is groundless or fraudulent.
Furthermore, there are several effective steps you can take to minimize the risk of these claims. First, you must be aware of your state lien laws. Consult with an attorney about preparing a written procedure that outlines the exact steps for disposing of a delinquent tenant’s property. Also, consider these best practices:
- Always double-check the spelling of names and addresses.
- Don’t make any changes to tenant information on the rental agreement, even if you believe you’re correcting an obvious misspelling, unless you have a signed change-of-address card from the customer.
- Document with video, photographs and written procedures during every step of the inventory and auction process.
In a lawsuit, you’ll need to show proof that the disposal of the delinquent tenant’s goods conforms to state laws. If there’s ever any reason to question the lien comes out, don’t do it! Many self-storage owners will allow customers to retrieve their property at no charge rather than go through the potential liability of a lien sale. Again, sale and disposal liability coverage is industry-specific and not normally available through regular insurance providers.
This is a standard exclusion on almost every insurance policy. The risk of an uninsured pollution event is greater than many self-storage owners realize. Our industry is clandestine in its very nature, as tenants seek privacy and security in storing their belongings.
Pollution conditions are defined as:
“The discharge, dispersal, release or escape of any solid, liquid, gaseous or thermal irritant or contaminant, including but not limited to smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, medical waste and waste materials into or upon land, or any structure on land, the atmosphere or any watercourse or body of water, including groundwater, provided such conditions are not naturally present in the environment in the amounts or concentrations discovered.”
Think about what might be stored in your self-storage units without your knowledge. Even the most long-term tenants could be leading you to a potential environmental nightmare. Cleaners and toner products, gasoline in lawn equipment, and other items on the Environmental Protection Agency’s Hazardous Materials List are probably on your property.
If you have outdoor vehicle storage, think about the fuel tanks, the “grey water,” and potential ground and water contamination. Many self-storage facilities allow RVs, boats and campers to be parked on the property. Such vehicles have large fuel, water and sewage tanks that could be holding hundreds of gallons of environmentally damaging liquids. If leaks develop, you may have some recourse against the customer, but only if you have a properly prepared boat- and RV-storage lease agreement. Otherwise, be ready to pay the entire cost of cleanup, which could completely drain your bank accounts.
Pollution liability coverage is an affordable insurance specifically designed for self-storage facilities. Here are some general policy features:
- Onsite cleanup of pollution
- Legal expenses and defense
- Business interruption for 30 days, with a $50,000 limit
- Microbial matter protection of $50,000, with exclusions for third-party coverage
- $1 million coverage for each loss
Accidents happen, and they can occur even in the safest and cleanest work environments. Workers’ compensation insurance protects you, the employer, against lawsuits resulting from work-related incidents, providing medical care and compensation for lost income to your employees. The coverage is designed to ensure staff who are injured or disabled while on the job receive proper reward, negating the need for lawsuits, regardless of who’s at fault.
Dependent coverage for workers who are injured or even killed by work-related accidents and illness is one of the many benefits of this type of coverage. Workers’ comp laws vary by state, but most have some form of statute. Businesses that meet certain conditions must provide this coverage for all employees or face ends and consequences.
Remember, your general liability coverage has exclusions relating to injury to anyone who should be covered under workers’ comp. Therefore, this very important coverage must be considered a mandatory part of your insurance portfolio. Follow your state’s statutes and purchase adequate insurance to protect your business from employee-related injury or illness claims. Workers’ comp is a vital, reasonably priced product that should be purchased if you have one or more employees.
The real question comes in determining who qualifies as an “employee.” By definition, this is a person hired to perform services under the direction and control of another person or company, known as “the employer.” A rule of thumb is that an employer is any person or entity who gives direction to and exercises control over a worker.
When purchasing a workers’ comp policy, most self-storage owners exclude themselves from the coverage. This is done for various reasons, including:
- An owner generally wouldn’t turn in this type of claim against themself.
- The premium is based on annual payroll and number of employees, so eliminating the owner lowers it.
- Most owners would prefer to use their own healthcare benefits for coverage in the event of an accident or injury, saving premium dollars.
However, be sure to include any friends and family who work for you part- or full-time, as they are and will be considered employees.
Also, keep in mind that when you hire a licensed contractor or vendor, you assume the work and materials will be of high quality and the workers involved will be competent. This is true in most cases, but misfortune can happen to even the most reputable company. Accidents can result in property damage or injury to your customers, employees or the general public. Hiring only licensed contractors and subcontractors who have proper insurance coverage is imperative to protect your business. Get references from their past clients and request a certificate of general liability and workers’ comp insurance.
Employment Practices Liability Insurance (EPLI)
There’s the saying that happy employees don’t sue, and for everyone else there’s EPLI. It sounds simple, but you need to always be fair to your staff. Even if you are, staff-related lawsuits do happen, served or not.
As a self-storage employer, you have many responsibilities, including taking care of an often changing and rotating staff. Employment laws, minimum wage and compensation requirements are also continually evolving. Today, the minimum wage and the Fair Labor Standards Act are getting a lot more attention. Therefore, it’s imperative that you stay abreast of any changes in the law. Employees can sue employers for wrongful termination, discrimination, “wage and hour” or other issues arising from the employment process.
EPLI is one of those exclusions typically found in your general-liability policy. Sometimes, you can get an endorsement to include EPLI, but it typically has a small sublimit and may not cover things like third party or wage and hour. You might be surprised to learn that current and former employees can sue; claiming that they were wrongfully treated during the employment process. EPLI can provide coverage for such claims as well as harassment and retaliation.
Additional Insurance Options
Beyond the must-have policies above, there are others you should consider for your self-storage business. They include:
Cyber liability. Do you accept checks, credit cards or direct deposits? Do you or your employees handle customers’ personal information such as email and home address, cell phone number, birthdate, driver’s license number, employment information, personal references, etc.? Identity theft and cybercrime have expanded to involve more than just stealing banking and credit card information. It now includes theft of email addresses, birthdates, logins, passwords, and other electronic and personal data.
Corporate identity and data-theft protection. Hackers love to steal email addresses. They often use them to pose as an honest business and phish for info. They’ll sometimes send “late-payment notices” to self-storage tenants via email and request banking or credit card info to avoid late fees or lien sale. Or they attempt to lure customers into responding and engage them in a conversation to establish trust; then they milk unsuspecting tenants for any information they may be willing to provide.
Many customers fall for this scam. Imagine the damage to your reputation if such an email was sent to your entire database? It paints a scary picture. Even if a financial loss isn’t actually suffered, the “cleanup” from a cyber attack can be equally devastating. How would you pay for the costs incurred by customers and third parties? This type of policy is available as an additional coverage to many insurance programs. Stand-alone cyber policies can also provide a broad range of coverage, and some offer prevention techniques in addition to protection.
There are so many insurance coverages and policies available that it can be challenging to determine which your business should have. Work with a specialized agent who knows the self-storage industry. They’ll be able to walk you through your exposures and offer ways to protect your company through risk-mitigation protocols along with the best insurance solutions.
Jenny Bortman is vice president at Universal Insurance Programs, which has created and provided specialized insurance coverages to the self-storage industry for more than 20 years. For more information, call 602.222.8300 or email [email protected].