Self Storage Insurance Coverages - All You Need to Know
As technology in our world evolves, self storage facility owners and managers face unique challenges in adapting to this new era we now live in. Our priority is to consult, analyze, develop and deliver reliable insurance portfolios which protect self storage facility owner assets through achieving a balance between the broadest and most comprehensive coverage available, at the most competitive premium available for your specific business needs.
our updated list of essential self storage insurance coverage options
At its most basic, the business of self storage is the straightforward business of renting space. Upon examining its operational layers, however, you’ll uncover numerous, significant risks that self storage operators face regularly in regard to self storage insurance. The days when self storage business owners might fully protect themselves with a simple addition of basic self storage insurance coverages such as Customer Goods Legal Liability and/or Wrongful Sale Liability are history. Currently, there are public self storage insurance risks that can and will expose operators to lawsuits which will threaten your investment’s financial stability.
In order to properly plan, prepare and more fully protect your vital investments, here is a list of the updated top self storage insurance policies which every self storage owner should undoubtedly consider adding to their self storage insurance portfolio moving forward.
comprehensive basic coverage with world insurance
With World Insurance Associates LLC, there are a number of basic coverage packages that every responsible self storage operator should consider. In many ways, the self storage business is a unique model that demands a unique approach when it comes to self storage insurance coverage.
Here are the more well-known self storage insurance coverages to include-
- Building & Personal Property- A basic but necessary blanket coverage for all your buildings and personal property, based on a replacement cost basis.
- Equipment Breakdown- Comprehensive coverage for all equipment breakdown exposures. (includes a wide range of equipment you may not always necessarily consider)
- Business Income- Business interruption insurance recovers lost income when you’re shut down due to a covered peril. I
- Crime- Covers any/all employee dishonesty/theft, as well as all money & securities.
- Debris Removal- Covers the cost of debris removal for property damaged by any insured peril.
- Ordinance or Law Coverage- Covers the cost of necessary upgrading to all current building codes following loss.
- Outdoor Signs- Covers damage to any/all outdoor signage.
- Flood- Covers cost of flooding damage.
- Earthquake- Covers cost of damage due to earthquakes.
Now let’s take a look at World’s list of top updated coverage options which are also more specific to the self storage industry, and vital now more than ever to protecting your business…
As alarming corporate data breach issues continue to rise into 2021—with no real reason to assume this disturbing trend will abate—we must be responsibly prepared to face looming, and very real cyber threats. As a cautionary example of breach damage, your business may be negatively subject to credit monitoring, public relations expenses, regulatory fines, and/or ongoing legal expenses/defense costs without the proper cyber liability insurance coverage to assist in case of breach, and bolster your existing self storage insurance policy.
Proper protection begins with wisely aligning your interests with reputable IT companies for software and payment processing needs. As sole owner/operator of your branded facilities, it is absolutely critical to-
- Maintain client trust.
- Demonstrate your ability to deliver recovery assistance in case of cyber-breach.
As an effective preventative measure, choose your most experienced insurance agent to recommend a Cyber Liability policy that appropriately protects your specific self storage insurance business interests, in addition to your existing self storage insurance policy that will deliver the client trust you deserve.
Employement practices liability
Employment related claims remain one of the most common business vulnerabilities and come in all shapes, sizes and forms. In the past few years, we saw the effects of the most common and potentially damaging types of claims situations- those of which involved harassment and/or discrimination (in light of the still burgeoning #MeToo movement). Now, with Covid-19 related workplace issues, it is not 100% clear how coverages and claims will further pan out regarding the pandemic and virus/bacteria provisions. Here we have situations concerning workplace safety protocols, and on the other side of it- the work from home dynamic. There are many legal issues on the line here. Consulting your trusted attorney has never been so important.
Maintaining comprehensive EPLI coverage is an absolute essential and a comprehensive, standalone policy should always be secured to ensure you’re fully protected with limited exclusions. As a standard however, many endorsement coverages are sub-limited, and restricted as to the breadth of coverage afforded.
Vital coverages included in an EPLI policy that are typically not part of your self storage insurance policy can include:
- Wage & Hour related
- 3rd Party claims
- ADA related claims
- Defense costs – Outside the limit of liability
- Breach of contract
In addition, having a broker able to decipher your self storage insurance policy limitations and to best negotiate terms and conditions is critical.
When it comes to self storage insurance, there are so many unknowns regarding items being brought on premises for extended storage that pollution liability coverage is absolutely essential to protect your business against unforeseen lawsuits caused by damage from potentially hazardous materials.
On a standard self storage insurance policy, Pollution Removal (as part of property coverage) will assist with costs of hazardous materials disposal, however, remember that this coverage must be triggered by a covered cause of loss first! Pollution Liability coverage, therefore, must not be confused with the liability coverage needed to defend yourself in any lawsuit related to harmful damages. Not only will pollution liability assist with legal costs at the time of a claim, but it may also assist with after-the-fact claims, when illness or damage might be discovered and can be tied to the initial damage on site.
Pollution Liability, as a standard Commercial General Liability exclusion, is therefore critical. Professional self storage insurance brokers maintain access for this self storage insurance line, and can secure for you a comprehensive policy based on the total number of facility units (at approximately $1.50 per unit annually).
directors & officers liability
If you’re currently in collaboration or joint ownership with another entity, or are considering this option, it’s vital to secure Directors & Officers Liability insurance. Depending on your business structure, you may be exposing executives, officers, and other members to significant, and unnecessary risk.
And this unnecessary risk is exactly why it’s key to have a self storage insurance policy specifically crafted for your needs. The following are a few examples of common partnership scenarios which could arise without proper D&O coverage:
- Accusation of Breach of Partnership terms and agreement
- Misrepresentations used to entice an investor to enter into contract
- Breach of fiduciary duties
- Mismanagement or Misconduct
- Failure to deliver on contract agreement conditions
The key question moving forward is- how well do you really know the people you’re in business with?
Making smart decisions with a knowledgeable broker to assist with a risk review and customized D&O policy is always worth your time and investment.
hired & non-owned auto liability
The plain fact is- Ii you have employees, you must have Hired and Non-Owned Auto coverage. This coverage is strict Liability protection for your business should bodily injury or property damage occur as a result of any employee getting into an auto accident in their personal vehicle during work hours.
The following, very common situations create exposure that could potentially put your self storage facility at risk, despite a standard self storage insurance coverage:
- Making bank deposits
- Offsite meetings of any kind
- Employees who work from home
- Any employee visiting/overseeing duties at another owned site
- Outside sales, marketing & promotions
- Mystery shopping a competitor
- Picking up/dropping off packages/mail from the post office
- Picking up breakfast/lunch
In addition, any employee could cause an insurance issue should that employee simply state they were “on their way to/from work” when any accident occurred. This statement alone could be enough for the driver’s personal insurance to deny liability and subrogate against the company’s commercial auto insurance- the Hired and Non-owned Auto coverage.
replacement cost on roofs
One self storage insurance coverage area that requires special attention is roof restricting endorsements which property underwriters often add to standard self storage insurance policies. Due directly to catastrophic wind and hail claims, insurance companies typically attempt to limit their exposure for costly roof repair and/or replacement claims. This is why it’s important to review your current self storage insurance policy with a specialized agent who can examine both a Cosmetic Damage limitation as well as an ACV (Actual Cash Value) roof clause.
With a cosmetic damage limitation, or any roof damage due to weather, a structural engineer’s report would be required to prove the roof was actually disengaged in order to cover loss. The policy will not pay, however, if the damage is considered solely cosmetic. Not only would this leave any owner with their investment unprotected, but it could cause a major delay in claim handling.
The ACV (Actual Cash Value) roof clause, on the other hand, simply states that the roof replacement would be depreciated due to weather damage. Let us use this alarming example-
The industry typically uses a 40-year life for metal roofs. Therefore, a 10-year-old roof could be depreciated by up to 25%, and a subsequent $500,000 roof claim could potentially leave an outstanding $125,000 out of pocket.
Although the self storage insurance industry is currently moving towards adding these coverage restrictions as common practice, there are still many underwriters allowing for full replacement cost on roofs. Providing updated roof information will arm your agent with negotiating power to remove these restricting forms. Any knowledgeable insurance agent will locate and explain the most suitable options for your self storage facility, and your specific self storage insurance needs.
extended business income
There are numerous hazards which could cause a significant loss of income to your self storage facility, and so every self storage insurance policy should include coverage for Business Income.
Typically, most self storage insurance policies include loss of income, however, it is important to review the form in detail with your insurance agent to understand the reimbursement time period for your specific self storage insurance policy. Many self storage insurance policies include only 12 months loss of income, and one year is usually insufficient.
An Increased Period of Restoration will allow for a longer timeframe for reconstruction. More importantly, an Increased Period of Indemnity provides extended time to rent after restoration is complete. It can typically take any self storage operation much longer to return occupancy rate prior to a loss than most other businesses and adding this additional self storage insurance coverage will protect your investment for a nominal additional premium.
ordinance or law coverage
Replacement cost coverage means that your insurance company will repair or replace the damaged property with “like kind and quality” materials. But if/when a Town, City, State or Federal code states that upgraded materials/specifications are required to rebuild, however, your standard insurance policy will not pay for those upgrades. This is precisely why it’s crucial to consider adding Ordinance or Law Coverage to your self storage insurance policy.
One current example of increased cost of construction requirements to self storage facilities is ADA compliance.
As of March 14, 2012, Title III of the Americans with Disabilities Act of 1990 requires specific standards for new and/or renovated properties. If your property has substantial damage from a covered cause of loss, your self storage insurance policy could pay for the required updates to be ADA compliant, only if you have sufficient Ordinance or Law coverage.
our self storage insurance takeaway
From a risk management perspective, the self storage industry is much more involved than simply selling storage space to consumers. Under the surface of this ever-changing business there are complex facets which require close examination and analysis for proper protection. The above key self storage insurance coverages will play a critical role throughout any claims situation yet must also be carefully and regularly reassessed as your company evolves, expands and prospers.
An experienced, professional self storage agent can and will present your best self storage insurance policy options to protect your all-important investment and keep your business future on the right track.
the unique business risks of your self storage facility future
The range of potential clients for your self storage facility and the near incalculable number of potential issues they may unknowingly present to your business future due to negligence, ignorance or willful, long-term neglect is staggering. This is certainly one of the many unique aspects of your—or any—self storage business as you evolve, expand and grow.
Among the many risks unique to the self storage business:
- Environmental/Pollution Hazards- With the combination of convenient client access and long-term storage neglect comes the potentially disastrous problem of client’s unknowingly introducing costly environmental and/or pollution hazards. Despite any proper precautions, a typical client is generally unaware of many of the both federally and locally regulated environmental and pollution prohibitions that come hand-in-hand with long-term storage.
Pollution Liability coverage can be an essential precaution against this potential business disaster.
- Vandalism, Burglary, Theft, Arson- Due to the often reduced or minimal level of security—compared to other high-value businesses—that a self storage facility might present, they are regularly a preferred criminal target. With the ongoing maintenance of proper lighting, security systems (video surveillance cameras, burglar alarms, et al) and personnel, and dedicated lines to police response, this self storage issue is one that must be addressed comprehensively and on a regular annual schedule.
- Property Damage and Weather- These are somewhat common business issues, especially for outdoor-based businesses. This is due to the relatively unique lack of client traffic/usage. The self storage business is very prone to issues regarding property damage, deterioration, and damaging weather issues. And because all self storage facility exteriors must remain 100% weather-proof year-round or face serious damage or deterioration from any number of weather hazards, this issue must be continually addressed and upgraded.
Continual maintenance and system upgrading always presents any self storage facility with ongoing issues that require not only ongoing upkeep, but also savvy self storage insurance coverage that works for both your budget, and your business future!
cyber security threats in the self storage industry
Although outside the self storage industry cyber-security issues may not at first appear to be a priority, inside the industry the reality of this very real threat is—and remains—evident.
As noted in a February 2019 insurance industry report-
“Up to 93% of all small and midsize enterprises that have experienced a cyber incident reported a severe impact to their business, and almost all reported a loss of money and savings. 31% reported significant damage to reputation leading to a loss of clients... And nearly half reported an interruption in service that damaged their ability to operate. Despite those figures, less than 3% currently have cyber insurance.”
Our own report covers this ongoing business threat in even greater detail.
what you need to know when developing your self storage facility
When developing your first self storage facility —including initial construction—there are any number of self storage insurance policies and coverages new owners/developers can select. Yet when in initial development/construction, far too many new owners tend to rely solely on the contracts and insurance certificates of their selected General Contractors (GCs) to adequately cover their own best business interests.
Especially when in initial development/construction, it is vital to take charge of your own business security and protect your new asset with proper industry specific insurance precautions.
Listed below—from most basic to most comprehensive—are 3 of the most specific self storage insurance coverages you should consider when in development/construction.
- Additional Insured (AI) on the General Contractor’s (GC) Policy-
Even with AI status and Hold Harmless agreements in your favor, this specific option has its drawbacks. When solely relying on the GC’s policy, there are no dedicated insurance limits specific to your project, therefore your GC’s limits could potentially be exhausted on a separate project of theirs, leaving limited or no coverage for yours.
When relying solely on your GC’s certificate of insurance, you’ll experience limited to no control over the policy status, coverage limits or exclusions under said policy.\
- Owners & Contractors Protective (OCP)
An OCP policy provides you—the actual project owner—dedicated insurance limits to and is typically purchased by the GC on your behalf. This policy is strictly intended to cover you for any GC negligence, however, an OCP policy should be written in conjunction with the GC’s standard General Liability Policy because with only a GLP you will have no coverage for sole owner negligence. In addition, there is-
- No contractual liability with a GLP.
- No option to add completed operations coverage.
- Your standard GLP may not even adequately cover any contributory negligence.
- Owner’s Interest Liability Insurance Policy
Known industry-wide as a Commercial General Liability policy—and typically referred to as Owners Interest Liability Insurance—this policy provides the most comprehensive protection available for your new owner interests.
Typically written for your business specifics, this policy allows for dedicated insurance limits including premises and contractual liability. An Owner’s Interest Liability Insurance Policy also provides primary coverage for sole negligence of the owner and would act as excess coverage over your GC for vicarious liability. In addition, the option to add extended products and completed operations is absolutely key if/when you intend to or are planning to sell within the statute of limitations.
Your self storage facility development is the beginning of your successful future and knowing the most reliable options to protect your investment is critical to your business future!
is my self storage facility actually covered in case of emergency and/or disaster?
The sobering business facts are these:
According to a 2019 FEMA report, over 40% of businesses fail to reopen after any major disaster due directly to a lack of adequate emergency/disaster insurance coverage. The US Small Business Association (SBA) also reports that an additional 25% of those businesses subsequently fail within 24 months following the loss. When we take the statistic from Claims Journal that up to 75% of all US small businesses have no disaster plan at all, these unfortunate but entirely avoidable facts speak for themselves.
Planning ahead and taking necessary steps to develop a disaster preparedness plan which directly addresses your specific self storage insurance coverage needs is key to your business future.
The best disaster plan begins with-
- A key list of priority emergency contacts including fire/police department, insurance agent, electrician, plumber and HVAC contractor.
- An updated list of all tenants, employees, and vendors.
- All such information must be backed-up and/or retained off site.
- A site map, building plans and all bank account records should also be backed-up and retained safely at an off-site location at all times.
From there it is best to address on-site employee safety.
A good employee safety disaster plan should include-
- A fully stocked and on-site emergency kit (including a first-aid kit, water, radio, handheld lighting with batteries, tool kit, whistle, fire extinguisher and blankets).
- A plan for disruption in utility services, including which utilities are vital along with contact information from your local providers to see which specific back-up options are available via phone service.
All emergency/disaster plans should be a dedicated part of your overall business continuity plan and must be updated regularly. The www.ready.gov site is extremely useful when creating and/or updating your plans. Your plans should be shared with your insurance agent and the more information you provide to your agent regarding disaster preparedness and updated safety features (especially plumbing, heating & electrical and roofing), the better.
when disaster strikes
Remember that any/all access to your self storage facility should be restricted if there is an extreme weather/disaster warning in effect. During a storm or disaster, only emergency personnel should be allowed on site. In case of fire—no matter how seemingly minor—it is crucial to immediately contact the fire department and then immediately evacuate the premises.
Following any extreme weather/natural disaster and confirming that your self storage facility is safe to approach, it is your duty to protect your facility from any further damage.
This duty includes-
- Securing all property.
- Contacting local authorities to report damage.
- Contacting your insurance agent to report any/all claims in a timely manner.
- Take on-site photographs and document all damage.
Following any loss, your lease agreement is your first line of defense against lawsuits, therefore your lease agreement should be properly evaluated by an attorney who specializes in the self storage industry and should be reviewed and updated regularly.
Another way to protect your business following any loss is a strong tenant insurance program.
For property and liability insurance, it’s critical to work with a specialized insurance expert who understands the unique challenges of the self storage industry. Your insurance agent should recognize your emergency need for-
- Extended periods of indemnity.
- Customer goods legal liability.
- Wrongful sale liability.
- Hazardous content removal coverage.
- Pollution and/or environmental hazard protection.
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