Many businesses have goods stored off site in warehouses owned and operated by others. Many homeowners have a storage unit they rent to keep property off premises.
In both situations you have property that is away from your main location. How is this property covered by your insurance policy?
Personal Lines Insurance
The first question to ask yourself if you have a self-storage unit? If so, what is the value of the goods stored there? The values in self-storage units can vary widely and you need to know what is at risk in this unit. The values you have at risk can also factor into the level of security that is needed for your goods. This may be a site selection consideration.
The next question is what language is present in my homeowners’ insurance policy regarding self-storage units?
There are at least two schools of thought on covering goods stored in a self-storage facility.
One limits the coverage to 10% of your contents limit (at your residence) or $1,000 whichever is greater.
The second approach is that you are covered at the self-storage facility as the property is “anywhere in the world”.
The second approach offers the broadest coverage. The limited coverage provided by the first option may be acceptable if the contents of your storage unit are within the 10% imitation. Both are dependent on your having an adequate limit of insurance. You must read your policy to determine which language is present.
Some self-storage operators offer contents insurance as part of the rental fee. These programs may exclude certain types of property or limit coverage for some perils. Talk to your agent before enrolling in one of these programs. We may be able to get your better coverage at a lower cost. These programs are based on convenience not a deep understanding of your needs.
If you are engaging a public or contracted warehouse to store goods for you, then the business insurance provisions would apply to your insurance needs.
Business Insurance
For goods stored away from your premises you have a number of options.
You can add the warehouse address as a location on your policy and state the limits of coverage that are required. The advantage of having first party coverage is that you control the terms and conditions of the coverage. If you do not have other property insurance, a scheduled property floater may be an option. For either case if the values at risk fluctuate, ask about either a reporting form or a peak season endorsement. This will custom fit the limits to your needs.
Your insurer has the option to pursue a claim against the warehouse operator if they feel the loss was the result of negligence on the part of the warehouse operator. The amount of Warehouse Legal Liability (WLL) can be an important underwriting factor in placing coverage for off premises storage.
The warehouseman must provide Warehouse Legal Liability (WLL) as part of the normal operations for a warehouse. This is coverage for your property, while in the care, custody, and control of the warehouseman for negligent handling or storage. The standard of care is what a reasonably careful person would do. Uniform Commercial Code 7-204 Legal liability coverage leaves a wide range of losses uncovered. If the cause of the loss cannot be proven to be negligence, there is no payment under WLL. The WLL limit selected by the warehouse operator is generally the limit required by contractual agreement with a customer. As a customer you need to understand that the WLL limit may be a fraction of the total amount of exposure in the building.
Within WLL insurance is a reliance on written agreements, receipts, and contracts. Most warehouse receipts can have a valuation clause where the warehouse operator limits their liability to a ratio of weights, storage receipts or handling receipts. Similar liability limitations are common in warehouse contracts that are signed for storage. Since these contracts are part of the claim adjustment process, be sure you understand the liability limitations before you sign the agreement or warehouse receipt.
Some warehouse operators will have a Personal Property of Others (PPO) coverage on their policy to address protecting goods in storage. They may be insured by a carrier that does not write WLL. This policy has a specific limit and caps coverage to a specific dollar amount. The limit of the PPO policy may be the highest value required under a contract. While this meets the terms of that contract, it may be only a fraction of the exposed values. In the event of a total loss at the warehouse, it is doubtful that the warehouseman will have adequate limits for your goods.
You may have an option to purchase higher liability limits at additional cost via the warehouse operator. If you are not satisfied with the standard liability terms, you can explore this option. Please engage with your insurance agent to fully evaluate your options and exposures.
Business Income
If you have goods off premises , you have a business income exposure if that warehouse suffers a loss. This is an often-overlooked exposure for many companies. If you are relying on the WLL coverage as your protection, you may not have the location listed as a property location on your policy. If the location is absent from your policy, there will be no business income coverage for a loss at that location. The WLL policy may not respond to consequential losses related to an event at the location. If the loss is not deemed negligence, the WLL policy will not pay the claim.
You can declare the location as a dependent property and have a business income limit established to protect you from losses that may occur at this off premises site. This step will require you to evaluate the exposure and determine the right limit of insurance and the proper period of restoration to recover from the loss.
Gratuitous Storage for Community Groups
If you are involved with a non-profit or community organization, you may have materials related to your operations being stored in a warehouse for free. The warehouseman is being a good citizen and supporting the community. In the case of storage done for free, the warehouse legal policy may not respond to a loss. Since the goods are not stored under a warehouse receipt or a contract, the trigger for coverage may be missing. The organization who owns the goods should carry their own insurance on the goods.
As a warehouse operator if you want to extend some protection to the organization, execute a storage agreement and charge a $1 fee. This will establish a coverage trigger for your WLL policy.
The Driehaus Difference
We have gotten down in the weeds on this topic. Your agent should be evaluating your property exposures and income exposures beyond the walls of your main location. That means asking more detailed questions, understanding your revenue streams and what can impact those streams. We take the time for both business and personal clients to look beyond the obvious. This is not possible if you think 15 minutes saves you 15%. If you never considered these exposures, you probably would not think you need the coverage. Call us at 513-977-6860 or reach out on the internet at www.driehausins.com
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