California Supreme Court Says Storage Space Protection Plan is Not Insurance

When is an insurance policy NOT an insurance policy? Well, Samuel Heckart rented a storage unit from A-1 Self Storage, Inc., in June 2012 for $55 a month and very recently got an answer to that question.

In this case, the “A-1 Self Storage Rental Agreement” signed by Mr. Heckart released A-1 from liability for loss of or damage to property at the facility. The rental agreement also required Mr. Heckart to maintain insurance for the value of his stored property.

The rental agreement stated that if Mr. Heckart elected to participate in the “Customer Goods Protection Plan,” the provisions of the rental agreement related to A-1’s liability would be modified by the protection plan. The protection plan allowed Mr. Heckart to decline to participate in the plan, but stated, in that event, that he had to provide to A-1, within 30 days, with information concerning his own insurance policy. If Mr. Heckart did not provide that information within 30 days, the protection plan provided, he would automatically be enrolled in the protection plan until he provided other insurance information.

Mr. Heckart noted on the protection plan that he declined to participate, but thereafter he was automatically enrolled in the plan and was charged $10 a month, presumably for failing to provide evidence of his own insurance within 30 days of signing the contract.

In April 2013, Mr. Heckart brought a putative class action on behalf of himself and all others similarly situated against A-1, claiming that the protection plan violated California’s Unfair Competition Law (“UCL”) (Bus. & Prof. Code, § 17200 et seq.) and the Consumers Legal Remedies Act (“CLRA”) (Civ. Code, § 1750 et seq.). He also alleged theories of misrepresentation and civil conspiracy. His claims were based on the allegation that the protection plan was a policy of insurance, which A-1 was not licensed to sell.

He alleged that by 2013, A-1 was annually collecting approximately $1.8 million under the protection plan, paying insurance broker Deans & Homer approximately $133,000, and paying approximately $25,000 in claims.  And that’s a win in anyone’s business.

The trial court ruled that the protection plan was not insurance, and the court of appeal affirmed. Both courts premised their rulings on the “principal object and purpose” test, which excluded from insurance regulation transactions that had an element of insurance where that element merely was incidental to a different principal object and purpose. The two courts concluded that the protection plan was incidental to the principal object and purpose of the parties’ transaction: the rental of storage space.

The dispute reached the California Supreme Court. The Supreme Court of California ruled that the self-storage company’s indemnity agreement was not subject to regulation as insurance under the California Insurance Code.

So even things that operate like things we know, might not be those things after all when the courts become involved. Disputes like this are everywhere and when contract matters, landlord/tenant affairs or even some collections affect YOUR business, call in the fully insured and protected litigator Dean Sperling to resolve YOUR matter with YOUR best interests in mind! 

More on the case:

Self-Storage Company’s “Protection Plan” Was Not Insurance Subject to State Insurance Code, California Supreme Court Rules