New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

Andrew M. Cuomo
Governor

James J. Wrynn
Superintendent

OGC Op. No. 11-04-03

The Office of General Counsel issued the following opinion on April 26, 2011, representing the position of the New York State Insurance Department.

Re: Insuring Self-storage Facility

Question Presented:

May a self-storage facility, which is not an authorized insurer, contract with another self-storage facility to assume that other facility’s liability for loss or damage to an occupant’s property?

Conclusion:

No. A self-storage facility may not contract with another self-storage facility to assume that other self-storage facility’s liability for loss or damage to an occupant’s property, because it would be doing an insurance business without a license.

Facts:

An attorney with a client that owns and operates a self-storage facility wrote:

Pursuant to an opinion of your office issued on March 12, 2004, my client is aware that it may offer a protection plan to its occupants whereby the owner assumes the risk for its own liability for a fixed monthly fee if such risk is of a kind or type for which the owner would otherwise be liable under the law and a kind or type that the owner may legally limit under the law.

With that in mind, our inquiry is whether a self-storage facility, which is not an authorized insurer, can enter into an agreement with another self-storage facility and assume the other self-storage facility’s liability for loss or damage to that self-storage facility’s occupant’s stored property for a fee (presuming that the other self-storage facility has an approved protection plan pursuant to the March 12, 2004 opinion of your office).

Analysis:

A self-storage facility may limit its liability by including a provision in its contract with occupants that sets “forth a specific liability per room size or dollar amount beyond which the owner will not be liable; provided that if damages are so limited, a statement shall be included that such liability may on the written request of the occupant and if accepted in writing by the owner at the time of signing such occupancy agreement or within a reasonable time thereafter be increased on part or all of the goods stored, in which event increased rates may be charged based on such increased valuation.” See New York Lien Law § 182(2)(a)(v) (McKinney 2007).

Office of General Counsel (“OGC”) Opinion 04-03-13 (March 12, 2004) concludes, inter alia, that a self-storage facility may charge a fee for agreeing to assume the full risk of its own liability for the loss or damage to personal property that is stored in the facility by an occupant (a “protection plan”), provided that the self-storage facility does not contract to assume any risk that is beyond the liability the law imposes upon it (i.e., negligence, strict liability, etc.).

The inquirer did not ask whether his client, a self-storage facility, may enter into a protection plan with an occupant that stores its personal property in the client’s facility. The inquiry is whether the client may enter into an agreement with another self-storage facility to assume the risk of liability that other facility possesses with respect to its own occupants. Thus, the client seeks to be paid a fee for assuming the risk of liability that arises not from its own business, but from that of another facility’s business. Insurance Law §§ 1101 and 1102 are relevant to this inquiry.

Insurance Law § 1101(a) reads in pertinent part:

(a) In this article:

(1) “Insurance contract” means any agreement or other transaction whereby one party, the “insurer”, is obligated to confer benefit of pecuniary value upon another party, the “insured” or “beneficiary”, dependent upon the happening of a fortuitous event in which the insured or beneficiary has, or is expected to have at the time of such happening, a material interest which will be adversely affected by the happening of such event.

(2) “Fortuitous event” means any occurrence or failure to occur which is, or is assumed by the parties to be, to a substantial extent beyond the control of either party.

* * * *

(b) (1) Except as provided in paragraph two, three or three-a of this subsection, any of the following acts in this state, effected by mail from outside this state or otherwise, by any person, firm, association, corporation or joint-stock company shall constitute doing an insurance business in this state and shall constitute doing business in the state within the meaning of section three hundred two of the civil practice law and rules:

(A) making, or proposing to make, as insurer, any insurance contract, including either issuance or delivery of a policy or contract of insurance to a resident of this state or to any firm, association, or corporation authorized to do business herein, or solicitation of applications for any such policies or contracts;

Whereas an agreement to assume all (rather than a limited amount) of one’s own risk of liability that the law imposes upon one as a self-storage facility is not insurance, an agreement to assume another self-storage facility’s risk of liability that the law imposes upon that other facility is insurance. In the first instance there is no transfer of risk, because the self-storage facility had always been subject to the risk of liability imposed upon it by law (i.e., negligence, strict liability, etc.) In the latter instance, risk is transferred from one facility to another facility that assumes liability that is not its own (i.e., negligence, strict liability, etc. arising from another facility’s operations).

The client would be doing an insurance business if it were to enter into an agreement with another self-storage facility, whereby the client, the “insurer,” would be obligated to confer benefit of pecuniary value (i.e., assume the risk of liability) upon another party, the “insured” or “beneficiary” (i.e., the other self-storage facility), dependent upon the happening of a fortuitous event (i.e., loss of or damage to an occupant’s stored property) in which the insured or beneficiary has, or is expected to have at the time of such happening, a material interest which would be adversely affected by the happening of such event (i.e., payment of a liability claim), for which an insurer’s license is required pursuant to Insurance Law § 1102. That statute reads in pertinent part as follows:

(a) No person, firm, association, corporation or joint-stock company shall do an insurance business in this state unless authorized by a license in force pursuant to the provisions of this chapter, or exempted by the provisions of this chapter from such requirement. Any person, firm, association, corporation or joint-stock company which transacts any insurance business in this state while not authorized to do so by a license issued and in force pursuant to this chapter, or exempted by this chapter from the requirement of having such license, shall, in addition to any other penalty provided by law, forfeit to the people of this state the sum of one thousand dollars for the first violation and two thousand five hundred dollars for each subsequent violation.

Thus, because the client is not authorized to do an insurance business in this state, it may not contract with another self-storage facility to assume that other self-storage facility’s liability for loss or damage to an occupant’s property.

For further information you may contact Associate Attorney Sally Geisel at the New York City Office.