By Rolf von Merveldt
One of the main reasons that we purchase insurance is to protect our assets. As a self-storage business owner, your facility is probably your largest asset, so your first concern is to protect it from a major loss such as fire, wind, hail or other acts of nature. Other concerns are loss of income if the facility is shut down due to a covered loss to the facility and employee theft of money or property.
The second main reason we purchase insurance is to protect our assets from a liability claim. Some examples of liability claims against self-storage business owners are if someone were to become injured on the premises, a sale and disposal procedure that was not handled properly, or a customers' goods legal liability claim. The last thing you want is to lose your facility as a result of not carrying enough property or liability coverage.
One of the ways you can ensure that you are adequately insured is to purchase an umbrella or excess liability policy. Umbrella policies are an additional layer of insurance protection to handle large losses, and they are an important part of your insurance coverage.
Years ago, a liability claim would rarely exceed $500,000. Twenty years ago, a $1 million limit of liability was common in most business insurance policies. However, in the last 10 to 20 years, we have seen claims that have gone above the $1 million limit.
Since most mini-storage policies are written on a businessowners policy form or a package policy form, coverages for your property, crime, general liability, sale and disposal liability, customers' goods legal liability, and hired and non-owned auto liability are included in the policy. The property limit will vary based on the replacement cost to replace the facility, the location, and the construction type. The crime coverage limit should be based on the facility's exposures, deposits, and cash on hand. This coverage can be controlled by safeguards and procedures.
Most general liability policies provide a $1 million per occurrence limit with a $2 million aggregate limit. The limit of liability for sale and disposal liability and customers' goods legal liability can vary depending on what limit you request. One of the best protections you can have for these two coverages is to have a property contract that spells out exactly what the facility owner is responsible for and what the tenant is responsible for. I always recommend the highest limit available, which is usually $1 million for each coverage.
The hired and non-owned auto liability limit should also be $1 million. This coverage is designed to protect the owner of the facility if he or she is named in a lawsuit as a result of an employee's being involved in an at-fault auto accident while driving a personal vehicle on company business. The general liability coverage premium is usually based on the number of units (indoor and outdoor), square footage of the facility, and whether there are climate-controlled units.
If your policy was designed by an insurance company specifically for a mini-storage facility, the company should be able to provide you with adequate limits for all of the coverages mentioned above. However, another important coverage that I didn't mention - and it is not provided by the businessowners policy or package policy - is worker's compensation. This coverage is designed to cover your employees if they are injured on the job.
Your objective is to protect your assets, and every facility owner should consider purchasing an umbrella/excess liability policy. An umbrella policy is designed to provide excess limits of coverage above the limits that are provided in your underlying policies. Your underlying policies would be the businessowners policy or package policy, worker's compensation, and auto policy if you have any owned autos.
Typical underlying policy limit requirements are as follows:
General Liability: $1 million each occurrence/$2 million aggregate
Automobile: $1 million combined single limit
Employers Liability: $100,000/$500,000/$100,000 (this is part of your
worker's compensation policy)
Umbrella limits are usually sold in increments of $1 million. Once again, if your intent is to protect your assets, you need to think about what limits you would need to protect those assets. The cost of an umbrella will vary by company; however, in most cases, they are usually inexpensive.
One of the concerns of an umbrella policy is that they are not standardized, so not all of them are the same. One example is that some umbrella policies will not provide excess limits for sale and disposal liability and customers' goods legal liability. This is why I always recommend you purchase the highest limit available under your primary policy for these two coverages. Also, if you have owned autos, you will need to make sure that the auto policy has the $1 million underlying limit.
If you purchase an umbrella policy, you will need to make sure that your underlying policy information is scheduled on the umbrella policy. The schedule should list each of the underlying policies by policy number, policy dates, type of coverage, policy limits, and the insurance carrier. We have seen an increasing number of requests from mortgagees requiring that owners carry an umbrella/excess policy. This is becoming more common every day.
If your intent is to protect your assets, then having an umbrella policy should be part of your insurance portfolio. I recommend that you meet with your current agent or broker to make sure that you have the proper coverages for your facility. If you do not already have an umbrella policy, you should investigate the possibility of purchasing one.
Rolf von Merveldt is a Commercial Sales Executive with Willis HRH in Wichita, Kan. He has been in the insurance industry since 1975 and has worked with self-storage facilities for over 25 years. For more information, please visit www.willis.com.
