Self Storage Insurance Coverages - All You Need to Know
At its core, self storage is a simple business of renting space. However, when you examine the operational layers of the business, there are many exposures and risks that self storage operators face. Gone are the days when self storage owners can fully protect themselves with the simple addition of the typical self storage coverages like Customer Goods Legal Liability & Wrongful Sale Liability to their insurance policy. There are many other risks that can expose the business to lawsuits or risk the financial stability of the investment. Here are the top commercial insurance coverages that every self storage owner should consider adding to their insurance portfolio.
As corporate data breach issues continue to rise into 2020, and cyber ‘thieves’ become smarter with ever-changing tools and methods that enable them to gain insight into our cyber trends, we must be prepared more than ever to face a potential cyber threat on a daily basis.
This first starts with aligning your business with reputable IT companies for our software and payment processing needs. However, do you have a plan should a breach to your company arise? Would you be ready and able to handle a six-figure expense? Thinking ahead of the basics of notifying all customers of the occurrence of the breach, and resolving the issue with the software company, the issue of cyber liability is highly sensitive.
There is sentiment involved here. People immediately feel violated, and worry instills for concern of how this breach may affect other aspects of their lives, credit history, etc. As owner/operator of your branded facilities, it is critical for your reputation and to maintain trust with your customers, that you are able to deliver recovery assistance in such a situation.
For example, Credit Monitoring, Public Relations Expenses, Regulatory Fines, Legal Expenses/Defense Costs will all add up rapidly, and without the proper insurance coverage to assist here, this could be quite detrimental. Data Breach and Cyber endorsements as an add-on to your Package policy do not fully address all facets of a cyber threat claim. An experienced insurance agent will recommend a Cyber Liability policy that more appropriately protects your business at a reasonable cost.
employement practices liability
Employment related claims are an exposure that all businesses are vulnerable to. At storage facilities, whether you employ long-time trusted managers, utilize a hiring agency or management agreement for leased employees. Furthermore, employee turnover is not a telling factor in analyzing the exposure for a potential claim either.
Employment Practices related claims come in all shapes and forms, and do not discriminate (pun intended!) The most common type associated with this coverage line is harassment and discrimination, especially in light of the #MeToo movement. There are, however other facets that come into play here and without the proper coverage you could be left confused and spending quite a hefty bill for ‘self insuring’ these instances. Although it is great to have EPLI coverage endorsed onto your portfolio Package policy, the following situations are typically not covered by means of endorsement.
Instead, a comprehensive, standalone policy should be secured to ensure you are fully protecting with limited exclusions. Often, most endorsement coverages are sub-limited, and restricted as to the breadth of coverage afforded. Vital coverages included in an EPLI policy that are not on endorsement 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 that is able to decipher policy limitations, and negotiate terms and conditions is critical, considering the vast differences that exist between policy verbiage from one carrier to the next.
In self storage, where there are so many unknowns in relation to items being brought on premise and stored within units, pollution liability coverage is essential to protect your company against unforeseen lawsuits arising out of damage caused by hazardous materials. On a standard package policy, Pollution removal (as a property coverage) can be covered which will assist with costs to utilize a contractor to dispose of hazardous materials. However, this coverage must be triggered by a covered cause of loss first, like a fire for example. This must not be confused with the liability coverage needed to defend yourself in a lawsuit related to harmful damages associated with such a situation.
Not only will a pollution policy assist with legal costs at the time of a claim, but it may also assist with claims that may trickle in after the fact, when an illness or damage is discovered at a later date, and can be tied to the occurrence on site.
Pollution Liability as a standard Commercial General Liability exclusion, is critical to purchase in order to safeguard your entity to the maximum capacity. Storage Insurance Brokers has access to a top program for this line, and can secure for you a comprehensive policy based on the number of total facility units you have for about $1.50 per unit annually.
DIRECTORS & OFFICERS LIABILITY
If you are currently in collaboration or joint ownership with another entity, or are thinking about joining forces for your next set of developments or acquisitions, it is important to secure Directors and Officers Liability insurance right away, or review your existing policy for coverages and limitations that may apply. Depending on how your business is structured, you likely are exposing executives, officers, and members in some capacity to risk without obtaining proper coverage. This is why it is key to have a policy specifically crafted for your needs. The following are a few examples of common partnership scenarios that could arise:
- Accusation of Breach of Partnership terms and agreement
- Misrepresentations used to entice an investor to enter into a contract
- Breach of fiduciary duties
- Mismanagement or Misconduct
- Failure to deliver on contract agreement conditions
HIRED & NON-OWNED AUTO LIABILITY
If you have any employees at all, it is highly recommended to have Hired and Non-Owned Auto coverage in force. This coverage is a line of Liability protection for the business, should bodily injury or property damage occur as a result of an employee getting into an accident in their personal vehicle during work hours. There are several situations where this may come into play, and it does not matter if driving/using one’s vehicle is a direct job requirement or not. The following situations create an exposure that could potentially put the self storage facility at risk without this protection in effect:
- Making bank deposits
- Off site meetings of any kind
- Employees that work from home
- An employee visiting/overseeing duties at another owned site
- Outside Sales, Marketing & Promotions- dropping pamphlets/brochures off at local area businesses/universities
- Mystery shopping a competitor
- Picking up/dropping off a package or mail from the post office
- Picking up breakfast or lunch for the staff meeting
In addition, simply running a personal errand on lunch break could cause an issue with insurance should that employee state that they were ‘on their way to/from work’ when the accident occurred. That would be enough information for the driver’s personal insurance to deny liability, and subrogate against the company’s commercial auto insurance- hired and non-owned auto coverage.
REPLACEMENT COST ON ROOFS
One coverage area that requires special attention are the roof restricting endorsements that property underwriters are adding to commercial insurance policies. Due to the catastrophic nature of wind and hail claims countrywide, insurance companies are attempting to limit their exposure of paying for costly roof repair or replacement claims. It is becoming very common for insurance companies to add roof restricting endorsements to their policies, especially in regions prone to wind and hail claims. It is important to review the coverage forms on your insurance policy with a specialized agent who can look out for both a cosmetic damage limitation as well as an ACV (Actual Cash Value) roof clause.
With a cosmetic damage limitation, if there is damage to your roof from a wind or hail storm, a structural engineer’s report would be required to prove that the roof was actually disengaged for the policy to cover the loss. The policy will not pay if the damage is considered solely cosmetic. Not only would this leave an owner with their investment not fully protected, but it could cause a major delay in claim handling when an engineer must be involved.
The ACV (Actual Cash Value) roof clause states that the roof replacement would be depreciated for wind claims. Let’s 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 25% and a $500,000 roof claim could leave $125,000 out of pocket. There are many factors involved in the calculation including the gauge of the roof, whether it is galvanized or painted ribbed, etc. but the gap in coverage would be significant.
Although the insurance industry is moving towards adding these coverage restrictions as common practice, there are still many underwriters allowing for full replacement cost on roofs. Providing information on updates to your roofs will arm your agent with the power to negotiate the removal of these restricting forms. A knowledgeable insurance agent will shop the market and explain the options that are available for your facility.
EXTENDED BUSINESS INCOME
There are many hazards that could cause a significant loss of income to your self storage facility. Every self storage operator should examine their coverage for business income. 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 time period that the insurance company will allow for reimbursement.
Many policies include 12 months loss of income. When you consider the amount of time it takes to rebuild and rent up to the occupancy prior to the loss, one year is usually insufficient. Some policies allow for increased time frame to recoup lost income. An Increased Period of Restoration will allow for a longer timeframe for reconstruction.
More importantly, an Increased Period of Indemnity provides an extended period of time to rent up after the restoration is complete. It takes a self storage operation much longer to get back to the occupancy rate prior to a loss than most businesses. Adding this additional coverage could protect your investment for a nominal additional premium.
ORDINANCE OR LAW COVERAGE
Insurance policies intend to make their customers whole after a loss. Replacement cost coverage means that the insurance company will repair or replace the damaged property with “like kind and quality” materials. If a Town, City, State, or Federal code states that upgraded materials or specifications are required to rebuild, a standard insurance policy will not pay for those upgrades. It is important to consider adding Ordinance or Law Coverage to your insurance policy. The older the facility, the more likely there will be code changes required when rebuilding.
One example of the increased cost of construction requirements to self storage is ADA compliance. As of March 14, 2012, Title III of the Americans with Disabilities Act of 1990 requires specific standards for new or renovated properties. If your property has substantial damage from a covered cause of loss, your insurance policy could pay for the required updates to be ADA compliant – if you have sufficient Ordinance or Law coverage. Typically, your insurance company will offer increased limit options to consider.
From a risk management perspective, the industry of self storage is much more involved than selling storage space to consumers by means of a rental contract and rent exchange. Under the surface of this ever-changing business there are facets that require close examination and analysis for proper protection. The above key coverages will play a critical role in your satisfaction throughout a claims situation, and should be carefully re-assessed from time to time, as your company continues to evolve and prosper. An experienced self storage agent will present these coverages to you as affordable options to protect your investment.
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