Case Study: New Orleans Business Struggles to Survive

Raymond Rathle said goodbye to his insurance agent, hung up the phone, and sighed heavily.

He thought about everything that had happened in the nine months since the hurricane hit. His New Orleans-based business, Carnival Brands, a manufacturer of Creole and Cajun foods, had been hit hard by Katrina. The 140-mile-an-hour winds had torn off portions of the roof of the company's warehouse, causing some $300,000 in damages. Even after carting out dozens of trash cans full of debris, Rathle had been unable to get the business going again. For one thing, he was still waiting on the required approvals from the Food and Drug Administration to begin producing food. And even if he had the official go-ahead, there was no one on hand to make the food--all of his 10 employees had left town. In 2005, Carnival Brands had had sales of nearly $1 million. The figure through May 2006: zero.

Throughout it all, Rathle somehow had remained confident that he'd be able to get Carnival Brands up and running again--until that conversation with his insurance agent in May. The carrier, which had been dragging its feet on making good on Rathle's business-interruption coverage, now had even worse news: It was dropping his policy completely. The odds of landing affordable coverage through another carrier were slim. The news left Rathle shaken. "Without coverage, it would be insane to reopen," he says.

But was he really ready to throw in the towel? A New Orleans native, Rathle had been producing Cajun and Creole foods since opening Carnival in 1990. Starting with seafood gumbo, he had expanded his product line to include more than 30 different items, produced on a contract basis for local restaurants, food distributors like Sysco, and casinos like the Treasure Chest. Business had been growing steadily and Rathle also owned his building, which was worth about $750,000--until Hurricane Katrina hit.

In the buildup to the storm, Rathle moved his wife and two children from their home in Jefferson Parish to the Hilton hotel downtown. The family rode out Katrina on Monday morning along with 500 other people in the ballroom of the hotel, which quickly lost power and swayed ominously in the hurricane's winds. By the afternoon, after the winds and deluge had subsided, Rathle decided he couldn't wait around any longer. "I told my wife I had to find out if we still had a home and business," he says.

Rathle jumped into his four-wheel-drive pickup truck, which was parked in the hotel's basement garage, and headed out onto the city's debris-strewn streets. The drive home, normally 10 minutes long, took Rathle two hours. The news was good, though. The family's Victorian home had emerged unscathed. Seeing his warehouse, on the other hand, was like a punch in the stomach. Katrina's winds had completely wrenched off the building's two 25-foot-wide metal shipping doors. "It looked like someone had tied a chain to them and yanked them off," he says. Massive holes in the roof had allowed rainwater to soak everything in sight. Of course, once he learned how many other businesses had fared, Rathle was grateful. "At least the building was still standing," he says.

Rathle then drove back to the Hilton to gather his family. As soon as they arrived home, however, Rathle's sense of relief was dashed. The streets in his neighborhood were now under two feet of water. That's when the news came: The city's levies had been breached. Rathle rushed his wife and children an hour to the Baton Rouge airport, where he arranged for a family friend to fly them in a private plane to his sister's home near Washington, D.C.

He then headed back home, stopping at a Baton Rouge sporting goods store to buy a pair of rubber waders and a boat. When he arrived, he armed himself with a pair of pistols and stood guard for three days as the water lapped at his front porch. "On two occasions," he says, "I chased away looters trying to break into my neighbors' homes."

As the days passed and the floodwaters began to recede, Rathle turned his attention to his business. He filled dozens of garbage cans with mud, ruined inventory, and sodden brochures. He estimates he lost $50,000 in raw and prepared food products, $50,000 in packaging and advertising materials, and he sustained about $200,000 in structural damage to his building. Still, the damage was not catastrophic.

Rathle registered with the SBA's disaster-relief program and filed a claim with his insurance carrier. Under his business-interruption policy, coverage was triggered by windstorm and fire damage, not by flooding--fortunate, since most of the damage to his property had been caused by wind. The carrier quickly came through with a check to pay for his building repairs. Meanwhile, he received 30-day reprieves from both his mortgage lender and his equipment vendor.