A-1 Self Storage has won a five-year class action lawsuit battle with the California Supreme Court’s unanimous ruling in Heckart v. A-1 Self Storage, No. S232322. This was a complete victory for A-1. It also vindicates the legal theory that protection plan is a direct undertaking of the storage operator that is incidental to the rental transaction and not insurance as defined by the California Insurance Code. The Court summarized its ruling as follows:
In its rental agreements with tenants, defendant A-1 Self Storage, Inc. (A-1) states that it shall not be liable for loss of or damage to a tenant's stored property, and it requires the tenant to obtain insurance for such losses. A-1 also offers an alternative to the requirement that a tenant obtain insurance: in exchange for an additional $10 in rent each month, A-1 will reassume the risk of such losses, up to $ 2,500. Plaintiff Samuel Heckart contends this alternative constitutes a contract of insurance, and because A-1 is not licensed to sell insurance, its sale of this indemnity agreement violates the Insurance Code.
We conclude that A-1's alternative indemnity agreement is not subject to regulation under the Insurance Code. First, the code's provisions that regulate the sale of insurance by self-service storage facilities as agents for licensed insurers have no application to A-1's alternative arrangement because A-1 is not acting as an agent for an insurer. Second, the code's definition of insurance has long been understood not to reach indemnification agreements between parties to a transaction if the indemnification agreement is incidental to the principal object and purpose of the parties' transaction, and it does not appear that the Legislature intended through its enactment of Article 16.3 to prohibit such incidental indemnification agreements. Here, the indemnification agreement is incidental to the principal object and purpose of renting storage space, placing it outside the scope of insurance regulation. Therefore, we will affirm the judgment of the Court of Appeal.