Buggie and Dodie Vegas thought they knew about disasters. The owners of Bridge Side Marina saw their small waterside hotel and bait shop in Grand Isle, Louisiana, flattened in Hurricane Katrina in 2005. But the couple rebuilt, thanks to having hurricane insurance.
Then came the explosion of BP’s Deepwater Horizon oil rig and the resulting spill. Before Memorial Day weekend, Buggie Vegas says, local beaches were closed. Bridge Side’s boat moorages and campgrounds emptied, and business tapered off at its small deli.
With tar periodically coating local shores, Buggie says this summer’s lucrative recreation season is already a writeoff. Most of the company’s dozen full-time employees and eight college-student summer helpers are now unemployed.
“We can handle Mother Nature,” says Buggie. “But this disaster we have no plans for.”
The Gulf oil spill presents an incredible disaster-planning challenge for companies like Bridge Side Marina. Because it was caused by a mechanical failure and not what insurers consider an “act of God” — hurricane, earthquake, or flood — insurance doesn’t cover it. Also not covered are the spill’s related beach closures by state agencies (considered excluded “civil authority” actions by insurers).
The spill, in fact, now regarded as the worst in U.S. history, seems so far beyond the possible that small business owners like Buggie wonder what, if anything, they could have done to prepare for it.
“There are [still] ways companies can try to recover sooner rather than later,” says commercial insurance broker Brian Smith of Charlotte, North Carolina, who’s advising AmEx Open on its new business-insurance service, InsuranceEdge. Companies fare best, he says, when they create a comprehensive disaster plan that covers insurance, operations, communications, and capital needs.
Get the Right Insurance
Like many entrepreneurs across the country, the Vegases’ disaster plan focused on the type of emergency they felt most likely to encounter — hurricanes. They kept and had used hurricane insurance, and knew how to cope with a hurricane: “We know it’s coming,” says Buggie, “board the place up and leave.”
But this one-shot approach leaves companies vulnerable to other calamities, as the Vegases discovered.
Buggie, for instance, never considered more broad-based business-interruption insurance. He did not get an “extra expense” rider or separate policy, which would cover the cost of moving operations because of a disaster. He also didn’t consider “contingent” insurance, which could have compensated him if key suppliers were knocked out by disaster, or an “umbrella” policy, which would have provided a higher dollar-value of coverage and would have filled in some gaps of his business insurance coverage. The Vegases never considered any of this because in 38 years of business, all they ever needed was hurricane coverage.
Have a Backup Plan
After the Gulf spill, the Vegases realized something else. They didn’t have a backup operations plan. What would have happened if some other kind of disaster had destroyed their hotel and office? How would they operate?
Dodie, in fact, still keeps handwritten ledgers with hotel guest information. If the ledgers were lost or destroyed, she’d be hamstrung in promoting the business next season. What they need to do, says Bob Boyd, chief executive officer of disaster-recovery firm Agility Recovery Solutions in Charlotte, North Carolina, is computerize their records and keep a backup tape in a secure location offsite.
If you lose important customer data, “you don’t even know how much money people owe you,” he says.
It would also be smart, says Boyd, for the Vegases to cultivate relationships with key government officials, such as local building inspectors or Federal Emergency Management Agency representatives. That way, they may get faster service when they need it. Boyd also recommends that the Vegases get to know their local news media, so they can help get the word out if they’re reopening or setting up shop at an alternate location.
Ultimately, one of the most serious situations the Vegases continue to face is lack of revenue. What they need is cash to get their business through these difficult times. After Hurricane Katrina, the Vegases quickly rebuilt Bridge Side with money they borrowed instead of waiting for their insurance to pay out, which got them back in business months faster.
But for this disaster, things have not been so easy. The Vegases did not have a rainy-day fund or a credit line that could be used in case of an emergency. They have managed to fill some of their hotel rooms with cleanup workers (even though, Buggie says, it’s not as much fun as having happy, vacationing families). But their campsites and boat docks are empty, and the tackle shop is shut down.
The couple has submitted Bridge Side’s past three years’ worth of tax returns to BP’s claim fund in the hopes of being compensated for their lost profits. But they could spend months waiting for a reimbursement check, and all the while, they will be facing a scary statistic: According to the Bureau of Labor Statistics, 43 percent of small businesses hit with a disaster never reopen, and another 29 percent close in the following two years.
Business reporter Carol Tice contributes to several national and regional business publications.