Disaster Sparks Insurance Coverage Reviews
Editor’s Note: Woodall’s Campground Management (WCM) contacted several campground insurers to comment on the fires in the West. Following are excerpts from their comments.
When it comes to forest fires, there are a few different coverages that apply, noted Damian Petty, an agent for Leavitt Recreation and Hospitality Insurance. Insurance can pay one of two ways:
• “If the fire actually comes onto the property and catches a building on fire, most people have some type of business income coverage. However the key is the building or item has to be covered by the policy to trigger the business income coverage. For example, let’s say you have 40 sites that are on the back portion of the property but no buildings caught on fire. It would not trigger the coverage. However having just a few things insured like fences, outdoor equipment, pedestals or something like that is always a good idea because this could trigger the cancellation of business income coverage.
“With this being said and if coverage was available, most people don’t understand that the insurance will only pay for Net Profit, Continuing Expenses, and, if purchased, Extra Expenses. It will pay until the buildings are replaced or repaired and normally only up to 12 months. Most people think that it pays for Gross Income and this is what causes most of the problems when people get the check from the insurance company because it is much less than the gross income they thought they were going to get.
So, how does the insurance company go about determining the loss?
“Normally, they will look back on prior years’ taxes or accounting records to determine actual loss and compare them to your records during the time you were closed.
• “The other Business Income that is on almost every policy is one for Civil Authority. If the forest fire is headed your way and civil authority requires you to leave your property, you have coverage for two weeks. Some companies are extending this to three and sometimes four weeks. However, one of the key parts to this coverage is you have to be required to leave your property as well as be gone for 72 hours before the coverage is triggered. They will pay you for your loss of income back to the first day you were required to leave, but the 72 hours is a deductible. For example, if you were required to leave like in the Canon City fires in Colorado this year, they were allowed back in and could open within the 72-hour period so no coverage would be offered. Some companies are doing right by people and paying because the road was closed for 68 hours but they don’t have to, according to the policy terms. However, the South Fork Fires in Colorado this year were a little different. They were required to leave for 8-10 days depending on where the business was located. This will pay for the entire time they were closed.”
Things that are not covered:
• You might be requested to prepare to be evacuated. The policy does not cover you for this time.
• Cancelation of reservations for future dates. Let’s say the fire is in June but people cancel for August. It will not pay for these.
• Maybe your resort is not closed but the highway that is mainly used to get to you was closed but people can drive around and still get to your resort.
• Extra Expenses might not be covered depending on the language in the policy.
• Your buildings burn on Sept 30 and you close for the season on Oct 10. They will only pay for loss of income for 10 days.
Tom Gerkin, an independent consultant for USI Insurance, reported, “Business interruption insurance or loss of income coverage is definitely a coverage option which most park owners take advantage of. Some insurance companies include some limited coverage in their policies with no additional premium charge, and with an option to purchase higher limits. Others offer it only as an option. Some carriers require you purchase a specific dollar amount of coverage while others leave this area wide open with ‘actual loss incurred’ policy language.
“The important thing for business owners to be aware of is that this is coverage for net income plus ongoing expenses, it does not cover their gross income. Oftentimes, lenders will ask park owners to provide coverage limits equal to their gross income. This is not prudent, as the premiums can be significant. Park owners should be certain their coverage is adequate, but not excessive. Most policies have a deductible for business interruption insurance as well. Instead of a dollar amount, the most common deductible I have seen is a 72-hour deductible, meaning there will be no coverage provided for that initial time frame. As with any insurance, the intent is to place you in the condition you were in prior to the loss.”
Campgrounds can guard against the loss of business while they are forced to close if they carry "business income and extra expense" coverage, also called "business interruption" coverage.
This insurance covers the campground if there are government ordered closures that affect the business, explained Lucas Hartford, president of Evergreen USA.
“Most typically, we see this with wildfires in the West or hurricanes on the East Coast. Most companies usually have a deductible period of one to three days of closure before the coverage begins but after that the business is compensated for their net income loss,” Hartford said.
He estimated that 35% to 45% of campgrounds do purchase this coverage with limits varying from $5,000 of coverage to $5,000,000 of coverage. But the average campground buys $50,000-$200,000 of coverage, he said.
“So far this year, Evergreen has been very fortunate and had very few large natural disasters affect its campgrounds that it insures,” he said. “The biggest natural disasters we have had have been some localized severe thunderstorms in the Northeast and Midwest. But we are remaining cautiously optimistic as hurricane season is upon us which is typically the greatest peril we face for our insureds.”