Understanding Business Interruption Insurance

Imagine this scenario. You own a very popular campground and are fully booked for the current summer season. What would happen to your business if the campground was forced to close for part of the summer? How would that affect your bottom line? Business Interruption Insurance is the answer.

Kevin and Dawn Benson, owners of the Cascade Locks KOA in Oregon, experienced this catastrophe first hand. On September 2, 2017, a teenage boy igniting fireworks during a burn ban started the Eagle Creek Fire. This wildfire raged in the Columbia River Gorge for more than 2 months, burning over 50,000 acres.

Fortunately, the buildings at Cascade Locks were not damaged; however, the municipality required them to shut down for several weeks due to the smoke and the proximity of the fire. None of the campers were able to stay, and the Bensons had to refund fees to those who had prepaid for their sites. Early September was fully booked, as is typical, so they lost several peak revenue weeks. Since their park is only open seasonally, they depend on every day during prime camping season to bring in the revenue they need to support the park, and their family, year-round.

Thankfully, the Bensons had a “Civil Authority” add-on to their policy, which means the insurance carrier would reimburse them for lost income and continuing expenses during the time they were closed. Because most “Business Interruption” insurance policies will not pay for lost revenue if the park is not physically damaged, this add-on is always a worthwhile investment. The Civil Authority add-on extends coverage should a government authority not allow you to operate for safety reasons, as was the case with the nearby fire.

Kevin and Dawn were asked to submit their revenue records from past years. This allowed them to prove typical September volume and revenue to their insurance company and to be reimbursed for a significant portion of their lost income. Kevin’s advice to all campground owners is:

  1. Be certain you have Civil Authority coverage in the event something impacts the operation of your park
  2. Ask your agent about the availability of a lower deductible

Most Business Interruption policies have a 72-hour deductible, meaning that the insurance company will not reimburse any losses you incur in the first 72 hours of shutdown. While this is typical, this was less than ideal for the Bensons. Because of the size of their park, and the fact that they were booked to capacity, losing 3 days of revenue over a holiday weekend was a significant loss. This year, Kevin upgraded his policy to a 24-hour deductible, which is the lowest his insurance company is presently willing to provide.

If you have questions, or are concerned you may not have the proper insurance coverage, we encourage you to contact the Merriam team. We will be happy to discuss your options and assist you in making the correct decision for you and your business.

James Dick, CPCU, AAI