Insurance professionals are often asked about professional-liability insurance by self-storage operators. The purpose of this coverage is simple: to keep you out of trouble and in business. In more technical terms: In your position as a storage operator or manager, you may be exposed to a potential lawsuit with regard to the professional advice, service or consultation provided to a third-party. Professional-liability insurance protects you in this event.
Defining Moments
Professional-liability insurance (also known as errors-and-omissions insurance) is primarily geared toward property-management companies of self-storage sites. Property managers provide a professional service to facility owners and are under contract to facilitate the daily operation of the sites they manage.
A property manager is normally responsible for bringing in income, maintaining the property to set standards, hiring a competent office manager and other staff to run the facility, purchasing products to increase revenue, and providing any additional services related to the property. If any of these services is breached or overlooked and it results in a loss or potential loss of income, the property manager could be held liable.
Case in Point
One unique example of a professional-liability claim occurred during the sale of a self-storage facility. The property was being handled by a property-management company that operated the facility on behalf of a third-party owner (the seller). The owner put the facility up for sale and notified the property manager of his intent. He accepted an offer for the property, and a closing date was scheduled for Oct. 1.
One month prior to the sale, the property manager received a bill to renew the facilitys Yellow Pages ad. This bill was due on Sept. 22. Because the site was up for sale and he knew he would no longer be managing the property, he disregarded the bill. He figured the new owner would take care of advertising and contact the Yellow Pages representatives directly.
On Oct. 1, the sale of the property went through as planned, and the new owner took over management of the site. After the transaction, he went through the new Yellow Pages directory searching for his facilitys adhis ticket to bring in customers. The ad was nowhere to be found.
The dismayed new owner considered this to be a material change in what he had purchased and went after the seller for potential loss of income due to the advertisement not being renewed. He sued for approximately $750,000 in lost revenue. The seller turned around and filed a lawsuit against the property manager for breach in contract because of his negligence to renew the Yellow Pages ad. The property manager did not carry professional-liability insurance and paid out of pocket for legal fees and settlement of the claim.
Dont Go There
Another common professional-liability situation occurs when a property manager creates accounting errors, purposely or accidentally. These errors might involve vendors, collections from tenants or anything internal.
For example, if an onsite manager failed to charge the correct rental rates for a number of units for many months, the owner of the property could potentially sue the property manager for loss of income due to negligence. Many times, accounting errors by a manager can also lead to misallocation of funds from one owners property to a different owners property, or even potential tax burdens that could be caught during an audit.
Additionally, managers should always hire vendors who hold a valid contractor license and provide proof of current general-liability and workers-compensation insurance. If services are provided by a contractor without all of the above, the property manager could potentially be liable if a tenant is injured on the premises due to poor workmanship.
Many property managers overlook the importance of professional-liability insurance and, maybe even worse, self-storage owners dont realize the importance of checking to see if their property managers carry adequate coverage. This is a larger liability exposure than most think because one claim can wipe out your business entirely.
If youre a property manager or consultant providing professional service or advice, research and purchase a professional-liability policy to insure you against the exposures you carry. Todays policies are reasonably priced, and the premium basis normally comes from your gross revenues for specific services. Its an investment worth making to avoid reckless exposure and devastating business losses.
Mike Gong is a property-and-casualty insurance professional for Arthur J. Gallagher & Co., which has provided a full range of insurance solutions to the self-storage industry since 1990. For more information regarding professional liability or any other insurance-related products, call 800.568.0833; e-mail mike_gong@ajg.com.
