When a disaster shutters operations or a key supplier goes dark, cash flow doesn’t just dip, it whiplashes. In Texas, business interruption coverage is supposed to be the bridge between crisis and recovery, but getting paid fairly often requires precision, tenacity, and sometimes legal firepower. This guide breaks down what qualifies as a covered loss, how to calculate and document the claim, common exclusions, and why working with a Texas Business Interruption Lawyer, such as the team at Omar Ochoa Law Firm, can make all the difference in disputed cases.
Defining business interruption coverage and qualifying losses
Business interruption (BI) insurance is designed to replace lost income and cover necessary continuing expenses when your business suffers a covered cause of loss. Most Texas commercial property policies include some BI component, either as part of a standard form or added by endorsement.
What typically qualifies
- Direct physical loss or damage: Most policies require physical loss or damage to covered property from a covered peril (e.g., wind, fire, hail). In Texas, courts generally interpret “direct physical loss” as a tangible alteration or impact to property, not merely economic harm.
- Period of restoration: Recovery covers the time reasonably required to repair, rebuild, or replace damaged property (subject to policy limits and any waiting period). Some policies extend coverage beyond reopening through “extended business income” provisions.
- Civil authority: If a government order blocks access to your premises due to nearby damage from a covered peril, limited BI may apply for a specified time frame.
- Contingent business interruption (CBI): If a key supplier, customer, or dependent property is damaged by a covered peril, CBI can replace lost income even when your own premises are intact.
- Extra expense: Separate but related coverage for costs incurred to avoid or minimize suspension, like temporary relocation, overtime labor, or expedited shipping.
Key qualifiers to watch
- Causation matters: The peril causing the interruption must be covered (windstorm may be covered: flood may require a separate endorsement).
- Waiting periods: Many BI provisions start after a 24–72 hour waiting period.
- Coinsurance and limits: Underinsurance can trigger penalties. It pays to review limits and any coinsurance percentage with a broker or attorney before loss season.
Policy exclusions that often complicate recovery efforts
Policy language can narrow coverage even when a business clearly suffers. Exclusions and limitations frequently at issue in Texas include:
- Flood and surface water: Often excluded without a specific flood endorsement (or a separate NFIP/private flood policy). Storm surge may be treated as flood.
- Earth movement: Earthquake and soil movement are typically excluded unless endorsed.
- Utility services failure: Off-premises utility interruptions (power, water, communications) may be excluded unless you added Utility Services coverage.
- Ordinance or law: Costs to comply with updated building codes may be limited unless you have an Ordinance or Law endorsement.
- Wear and tear / maintenance: Deterioration, corrosion, and mechanical breakdown are typically excluded: resulting damage from a covered peril may be treated differently.
- Pollution/contamination and virus: Contamination and virus/bacteria exclusions became flashpoints: Texas courts have largely rejected BI claims that lack physical alteration to property for virus-only shutdowns.
- Concurrent causation and anti-concurrent causation: If both covered and excluded perils contribute to a loss, anti-concurrent causation clauses can bar recovery. Texas law on concurrent causation is nuanced, legal analysis is essential when multiple perils intertwine.
Because exclusions hinge on precise facts and wording, businesses often benefit from an early coverage review by a Texas Business Interruption Lawyer who can parse endorsements, sublimits, and causation hurdles before the claim calcifies.
Calculating lost revenue and ongoing operating expenses
Insurers expect a rigorous, supportable methodology, not a back-of-the-napkin estimate. The standard measure under many forms is: net income (that would have been earned) plus continuing normal operating expenses, including payroll, during the period of restoration.
Common valuation methods
- Before-and-after: Compare performance immediately pre-loss to during-loss, adjusted for seasonality and known trends.
- Yardstick/benchmark: Use comparable stores, regions, or industry data when your own pre-loss history is limited or atypical.
- But-for projections: Build a model using multi-year historicals, sales mix, growth trajectory, booked orders, and reasonable market forecasts.
Key components to include
- Lost gross earnings: Sales that would have occurred absent the loss, less saved variable costs (like cost of goods sold, utilities tied to production).
- Continuing expenses: Rent, key payroll, insurance, taxes, loan interest, costs that persist even while doors are closed.
- Extra expense: Overtime, temporary sites, equipment rentals, rush freight, marketing to recover lost customers, tracked separately and sometimes covered even if they reduce the BI loss.
- Saved expenses: Document what you didn’t spend because operations paused. Credible recognition of savings improves claim integrity.
Nuances that change the number
- Seasonality and events: Texas hospitality, energy services, and retail often swing with festivals, storms, or school calendars, model accordingly.
- Capacity constraints post-loss: Even after reopening, damaged equipment or supplier bottlenecks can limit throughput: extended BI can matter.
- Mitigation duty: Policies require reasonable steps to reduce loss. Document efforts, alternate suppliers, shift changes, temporary leases, because they support recovery of extra expense and blunt insurer arguments about avoidable loss.
For significant claims, many Texas businesses retain a forensic CPA alongside counsel to develop defensible models and speak the adjuster’s language.
Documenting financial impact to strengthen claim validity
Strong documentation shortens disputes. The goal is to tell a clear financial story from pre-loss health to the precise impact and your mitigation efforts.
Core records
- 2–3 years of financials: Audited or reviewed statements if available, plus monthly P&Ls and balance sheets.
- Tax returns: Consistency checks matter to carriers.
- Detailed sales data: POS exports, SKU-level reports, channel breakdowns, and booked order logs.
- Payroll and staffing: Timesheets, pay runs, and any furlough/retention decisions.
- Inventory and COGS: Stock counts before/after, purchase orders, and vendor lead times.
- Repairs and rebuild: Bids, change orders, permits, inspections, and photos showing progress.
- Extra expense trail: Invoices, receipts, and written rationales tying expenses to loss reduction.
- Communications: Notices from landlords, utilities, suppliers, and civil authority orders.
Process tips
- Create a loss calendar: Day-by-day timeline of closures, access limits, and supply disruptions.
- Version control: Keep a clean working file: label drafts sent to the insurer.
- Proof of loss: Submit timely and keep copies. In Texas, deadlines in the policy and under the Prompt Payment of Claims Act affect leverage.
- Single point of contact: Designate someone who understands both operations and finance to interface with adjusters and experts.
Well-organized evidence not only secures faster evaluations: it positions the claim for appraisal or litigation if the carrier digs in.
The rise of 2025 claims linked to natural disasters and supply delays
Texas businesses continue to feel the compounding effects of severe weather and fragile supply chains. In 2025, several trends are shaping BI claims:
- Weather volatility: Stronger wind events, hail outbreaks, and flooding pockets have broadened the footprint of property claims, especially for coastal and Hill Country operators. Even when the building survives, power and access disruptions trigger civil authority and utility-related issues.
- Wildfire and heat impacts: Extended heat waves and burn bans limit operations for construction, agriculture, and outdoor venues, with smoke damage and evacuation orders complicating coverage analyses.
- Supply chain choke points: Delays at ports, rail interruptions, and overseas bottlenecks ripple into Texas manufacturing and retail. When a dependent supplier suffers physical damage (domestic or abroad), contingent business interruption can come into play, if the peril is covered and the policy includes CBI.
- Labor and demand whiplash: Post-event labor shortages and sudden demand surges can skew before-and-after comparisons. Robust models must separate genuine loss from market anomalies.
Takeaway: The 2025 picture rewards preparation. Reviewing endorsements for flood, utility services, and contingent BI before peak seasons, and lining up a claims playbook with counsel, saves painful days when the lights go out.
