Last week’s blog entry, Fact: 40 % of Businesses Shut Down After a Disaster. Will Yours Survive?, profiled a New York Times case study on a business that provides holistic services to women undergoing medical fertility. The yoga studio is conveniently located a few doors down from one of the country’s largest fertility clinics, and 60% of their clientele stream down the hall to their studio after their medical treatments.

The yoga studio experienced two floods in the same year and sustained costly business income losses and loss in market share after they were forced to relocate half a mile away for over four months. After the second flood, the owners contemplated whether the location was worth the risk of another flood and restoration process (the second flood did not force them to relocate, but their customers had to wear headphones to block out construction noises during their sessions) or if they were better off somewhere else.

The New York Times asked business and risk experts to weigh in:

Ken Barnett, chief executive of MARS Advertising, a marketing agency based in Southfield, Mich., that lost everything in its 50,000-square-foot headquarters to a 2004 fire: “The karma may be great along the river, the space may be perfect, but the fact is there are enough things in business that you cannot plan for. Why burden yourself with the uncertainty, lying in bed on a stormy night, that your business may not survive?”

Donna Childs, author of a book about disaster preparedness: “The answer to the question of should they move to a new location is to be found in the mission of the business, providing stress-reducing yoga to aid fertility. Disruptions are stressful.”

John Glenn, Enterprise Risk Management (Miami) says: “Even the best business continuity plan won’t save an organization teetering on failure before an event."

The verdict: the yogis decided to stay down the hall from the clinic. Here’s an excerpt of their interview.

Q: Did you survey your customers and employees to learn their feelings on being dislocated and inconvenienced by your floods?

Ms. Quinn: We did an informal survey at checkout when we were in our temporary location. We asked: How did you find the experience and location? What we should have done is like a SurveyMonkey, something a little more anonymous, because I’d say 80 percent of our patients put a very nice smile on their face and said, “Oh, you guys are so nice here.” A sort of attaboy pat on the back. I’m not certain we got many straight answers. I do remember a couple of clients saying the temporary location didn’t work, that it was noisy and felt incomplete. So I do think we lost some clients, but I also think those who stayed were committed to us on a lot of different levels.

Q: It sounds like there continues to be some uncertainty.

Ms. Quinn: There is some uncertainty. When Beth and I tried to renew our insurance, we were denied. Our insurance was dropped. Our insurance broker said this had nothing to do with our two losses but because we were becoming more like a bona fide medical facility because we were going into areas like nutritional supplementation, which is a field that scares some insurers, I guess.

Q: Do you have liability insurance and flood insurance at the moment?

Ms. Quinn: We do, but we had to put our entire account up for review and go to the open market. And we’re paying more than twice as much now, up from around $10,000 a year to about $24,000 a year.

Q: You’re insured, but there’s no guarantee, of course, that you won’t have another flood next July.

Ms. Heller: Believe me, Tami and I are going to have our toes, fingers and eyes crossed for the entire rainy season in Chicago. Honestly, Tami, every time it rains don’t you think, Oh, dear God, what’s happening at the river?

Q: Even with the advantages of being down the hall from the fertility doctors, is the karma really right at this site for an enterprise built upon such healing arts as yoga and massage?

Ms. Quinn: Because our mission is to integrate holistic medicine with traditional Western medicine, we don’t want to be separated. So we’re willing to take the risk of another flood to accomplish that mission, of having a Western medical doctor on one end of the hall and a holistic practitioner on the other end of the hall who talk to each other, and patients who treat all aspects of their person — mind, body and spirit.

Q: So if you suffer another flood, you would suck it up and stay where you are?

Ms. Quinn: If we ever had to temporarily relocate again, we would break our lease and say sayonara. I think if it happened a third time, and the doctors didn’t want to move, we’d have to go on our own because at that point we’d just be stupid.

The yogis made a business decision to stay. It appears that they are already experiencing insurability issues and a hike in premiums, but their business model is dependent on the location and they have decided to hedge the odds of another loss.

Chip Merlin noted in his blog post, Anticipating Manmade and Natural Disaster Trends That Impact Businesses, that:

Disasters are occurring with greater frequency with widespread financial impact; this is inevitable as the world’s population has increased and global trade is more frequent. Even when disasters occur far away or last for a relatively short period of time, we live in a globally interdependent society and are likely affected.

Buying adequate insurance coverage is a fundamental step in ensuring the success of a business enterprise, but insurance is never a substitute for a risk management plan that will help businesses maintain daily operations after a catastrophic event. As attorneys and consultants, we urge our clients to invest in understanding the ebb and flow of their operations and develop a resilient catastrophe plan that will jump start right away.

At a glance, it appears that the yogis did not have a resilient Business Continuity Plan as they relied on the landlord’s emergency response plan, which was frustratingly sluggish. We all wish the yogis the best of luck, but we all also hope they learned some valuable lessons on risk management and business interruption claims. The yogis should also consider purchasing adequate Contingent Business Income coverage, since they are dependent on the fertility clinic and another catastrophic loss could likely damage and interrupt the clinic as well.