Did the Insurance Company Underpay Your Commercial Fire Claim?
A fire at a commercial property can affect far more than the building itself. Inventory, machinery, restaurant equipment, office systems, fixtures, records, tenant improvements, and the business’s ability to continue operating may all form part of the loss.
Even when the insurance company accepts coverage, its payment may account for only part of what the business needs to repair the property, replace damaged assets, remove smoke contamination, and restore operations.
Commercial fire claims can be difficult to evaluate because commercial policies are not uniform. Coverage may depend on the type of business, the property listed on the policy, endorsements, deductibles, sublimits, coinsurance conditions, and the valuation method applying to each category of property.
An estimate that appears substantial may still omit important expenses, apply unsupported depreciation, or value specialized property using assumptions that do not reflect the policy or current commercial market.
At Herrera PLLC, Jonathan Herrera represents business owners and commercial property owners in Houston and throughout Texas whose fire and smoke damage insurance claims have been underpaid.
Before becoming an attorney, Jonathan spent more than a decade handling high-exposure property and casualty claims as a licensed insurance adjuster. He founded and operated JH Claims LLC, a multi-state independent adjusting firm, and later practiced insurance defense before founding Herrera PLLC.
That background gives him firsthand knowledge of how insurers document commercial property losses, separate coverage categories, apply depreciation, review business records, evaluate contractor estimates, and determine claim payments.
Personal Commitment. Proven Experience.
Learn more about Jonathan Herrera’s insurance industry and legal background
What Makes a Commercial Fire Claim Different From a Residential Claim?
A commercial fire loss may involve several insured interests and multiple valuation methods within the same claim.
Depending on the policy and the nature of the business, the claim may include:
- Damage to the building or leased premises
- Business personal property
- Machinery and specialized equipment
- Furniture and fixtures
- Inventory, stock, and raw materials
- Tenant improvements and betterments
- Debris removal and demolition
- Smoke, soot, and odor remediation
- Testing, engineering, and professional services
- Extra expenses incurred to continue or restore operations
Each category may have its own limit, deductible, exclusion, endorsement, and valuation provision.
The building may be insured by the property owner while the tenant’s improvements, inventory, furniture, and equipment are insured by the business occupying the space. A restaurant, manufacturer, retailer, medical practice, and office-based business may therefore experience very different insured losses after fires affecting similar-sized properties.
Commercial property insurance can use replacement-cost coverage, actual-cash-value coverage, or a combination of the two. Business interruption, extra expense, ordinance or law, machinery, and other protections may require separate coverage or endorsements.
An underpaid commercial fire claim should be evaluated category by category rather than treated as one generalized repair estimate.
Learn more about the broader process on the Commercial and Business Property Insurance Claim Underpaid page .
How Do Commercial Fire and Smoke Claims Get Underpaid?
Specialized Equipment and Fixtures Are Valued Too Low
Commercial equipment can be difficult to value because a generic estimating system may not account for the item’s specifications, installation requirements, availability, or role in the business.
The claim may involve restaurant equipment, manufacturing machinery, medical devices, computer systems, refrigeration, electrical controls, security equipment, built-in displays, or other industry-specific property.
An insurer may rely on a generic substitute or depreciation schedule that does not reflect the applicable cost of repairing, replacing, or valuing comparable equipment under the policy.
Depending on the policy, a complete calculation may need to address:
- Freight and delivery
- Installation and connection
- Calibration or programming
- Removal of damaged equipment
- Integration with existing systems
- Required testing or commissioning
- Code-related work
- Availability and lead times
The proper measure of value depends on the policy. Some equipment may be valued at replacement cost, while other property may be subject to actual cash value, an agreed-value provision, a scheduled limit, or another valuation term.
Inventory and Stock Losses Are Underestimated
Inventory does not need to be visibly burned to lose its commercial value.
Smoke, soot, heat, water, odor, and fire-suppression materials can affect merchandise, food products, packaging, raw materials, and finished goods. Items may appear intact but no longer be safe, usable, marketable, or acceptable to customers.
The insurer may dispute:
- Whether smoke reached a particular area
- Whether the stock can be cleaned or repackaged
- How much inventory was present
- Whether packaging was compromised
- Which valuation method applies
- Whether the property retains salvage value
- Whether seasonal stock was properly documented
Inventory may be valued according to purchase cost, selling price, cost of production, or another policy-specific provision. The business’s inventory system, purchase records, sales history, photographs, inspection findings, and contamination evidence may all be relevant.
The insurer should not treat visible flame damage as the only measure of loss when smoke, soot, water, or another covered effect of the fire damaged inventory outside the immediate burn area.
Tenant Improvements and Build-Out Costs Are Omitted
A business leasing commercial space may have invested substantially in tenant improvements and betterments.
These can include interior walls, flooring, ceilings, built-in cabinetry, plumbing modifications, electrical work, lighting, commercial kitchens, ventilation, data infrastructure, treatment rooms, or production areas.
Those improvements may not be included in the landlord’s building claim. Whether they are covered under the tenant’s policy may depend on:
- The policy’s definition of improvements and betterments
- Who paid for the work
- Whether the improvements can legally be removed
- The lease’s allocation of repair responsibilities
- The applicable coverage limit
- Whether the tenant repairs or replaces the improvements
- Whether the landlord or another party pays for restoration
Some commercial forms value tenant improvements differently depending on whether repairs are completed promptly, how much time remains on the lease, and whether another party funds the restoration. The exact result depends on the policy in force, so the lease and insurance documents should be reviewed together.
An estimate focused only on the landlord’s building damage can leave the operating business without enough funding to restore the space it actually used.
Smoke Contamination Beyond the Fire Area Is Overlooked
Smoke and soot can move through open spaces, wall cavities, ventilation systems, and shared commercial areas.
Commercial properties may contain electronics, machinery, food products, textiles, records, finishes, or sensitive equipment that cannot be evaluated through a visual inspection alone.
A complete assessment may need to address:
- HVAC ducts and air-handling equipment
- Electrical panels and controls
- Computers and communication systems
- Mechanical equipment
- Ceilings and concealed spaces
- Inventory outside the burn area
- Adjacent rooms or commercial units
- Odor treatment and post-cleaning verification
The insurer may propose surface cleaning without addressing whether contaminants entered mechanical systems or affected sensitive equipment.
Whether cleaning, testing, repair, or replacement is appropriate depends on the property involved, the extent of contamination, reliable technical evidence, any standards relevant to the affected property, and the policy.
Commercial Repair and Reconstruction Costs Are Priced Too Low
Commercial reconstruction can involve different labor, materials, scheduling, and professional requirements from residential repair work.
An estimate may fall short because it uses:
- Outdated material prices
- Residential rather than commercial labor assumptions
- Incorrect quantities or measurements
- Generic equipment allowances
- Insufficient demolition or access work
- Missing permits or professional services
- Pricing that does not reflect the local commercial market
A commercial reconstruction project may require coordination among engineers, architects, electricians, mechanical contractors, fire-protection specialists, inspectors, landlords, and building managers.
General conditions, supervision, project management, and contractor overhead should be evaluated against the repair’s actual complexity and the policy. They are not automatically payable in every commercial claim, but they should not be omitted solely because they are absent from a simplified estimate.
Code-related expenses should also be evaluated separately. The need to comply with current building codes does not automatically establish insurance coverage for every upgrade. Payment may depend on whether the policy includes ordinance or law coverage and the limit applying to that protection. TDI identifies ordinance or law coverage as an additional commercial coverage that can pay qualifying costs required to meet current codes.
The Insurer Rejects the Business Owner’s Contractor Estimate
A business owner may obtain estimates or actual bids from qualified commercial contractors that are substantially higher than the insurer’s estimate.
The insurer may continue relying on its lower figure without clearly explaining:
- Which quantities or measurements it disputes
- Which work it considers unnecessary
- Why its labor rates are lower
- Which material specifications it used
- Whether it included necessary subcontractors
- How it accounted for permits, access, and project complexity
A contractor’s estimate is not automatically controlling merely because it is higher. The insurer’s estimate is not automatically correct either.
The estimates should be compared line by line, including their scope, quantities, specifications, unit prices, necessary trades, access requirements, and supporting documentation.
Extra Expense Coverage Is Not Fully Applied
A commercial policy may include coverage for reasonable extra expenses incurred to continue operations or reduce the interruption caused by covered property damage.
Depending on the policy and circumstances, qualifying costs may include temporary premises, equipment rental, moving expenses, temporary utilities, expedited shipping, additional security, or other expenses above the business’s normal operating costs.
Extra expense is different from business income coverage. Extra expense generally concerns additional costs incurred to continue or restore operations, while business income coverage generally addresses qualifying income loss and continuing expenses during the applicable restoration period. TDI also treats business interruption and extra expense as distinct commercial coverage options whose availability depends on the policy purchased.
This page focuses primarily on physical property and extra-expense underpayment. Disputes involving projected revenue, continuing expenses, payroll, and the period of restoration may require a separate business income analysis.
The Insurer Applies a Coinsurance Reduction
Some commercial property policies contain a coinsurance condition requiring the business to maintain insurance equal to a stated percentage of the covered property’s value.
If the insurer concludes that the building or business property was underinsured when the fire occurred, it may reduce payment proportionally, even when the loss itself is below the policy limit.
A coinsurance calculation may depend on:
- The percentage shown in the declarations
- The property value used by the insurer
- The applicable coverage limit
- The amount of the covered loss
- The deductible
- The coverage category to which the condition applies
- Any agreed-value or coinsurance-waiver endorsement
The insurer’s property valuation is particularly important. An overstated building or property value can create or increase a claimed coinsurance shortfall.
The policy should also be reviewed to determine whether the insurer included the correct property, applied the right percentage, or overlooked an endorsement affecting the calculation. A TDI-filed commercial property form illustrates how a coinsurance condition can proportionally reduce a partial-loss payment when the applicable insurance limit is below the amount required by the stated percentage.
Part of the Claim Is Paid While Another Part Is Denied
A commercial fire claim is not always a clean underpayment or complete denial.
The insurer may pay for building repairs while denying or limiting tenant improvements, particular equipment, contaminated inventory, testing, code-related work, or extra expenses.
A payment on one part of the claim does not necessarily mean the insurer correctly evaluated every other coverage category.
The paid and denied portions should be reviewed together because an omitted or denied category may represent a substantial share of the business’s total loss.
When the principal problem is a complete or partial rejection of coverage rather than valuation, the Commercial and Business Property Insurance Claim Denied page.
How Is Commercial Property Valued After a Fire?
Commercial property does not always have one uniform measure of value.
Depending on the policy and property involved, valuation may include:
- Replacement cost
- Actual cash value
- Agreed-value provisions
- Selling-price or cost-of-production provisions for qualifying stock
- Special valuation terms for particular equipment or property
- Scheduled limits that cap payment for listed items
Replacement-cost coverage generally uses current repair or replacement costs, subject to the policy’s conditions and limits. Some policies do not make all replacement-cost benefits payable until the damaged property is actually repaired or replaced.
Actual cash value generally reflects depreciation, although the policy and applicable law govern how the value and depreciation are calculated. TDI explains that commercial property policies may use replacement cost, actual cash value, or a combination, and that actual cash value reflects replacement cost minus depreciation.
Inventory, machinery, tenant improvements, and building components may each be governed by different provisions.
A proper review should identify the valuation method the insurer used, confirm that it matches the policy, and determine whether the insurer relied on accurate ages, conditions, specifications, quantities, and market costs.
Does the Commercial Policy Include Appraisal?
Some commercial property policies allow either party to demand appraisal when the disagreement concerns the value of property or the amount of loss.
Depending on the policy, appraisal may address disputes involving:
- Repair or replacement costs
- Actual cash value
- Depreciation
- Inventory or equipment value
- The amount of covered physical damage
- Property value used for a coinsurance calculation
Appraisal does not necessarily resolve disputes over whether a category of property is covered, whether an exclusion applies, or whether the policy was in force.
The commercial policy should be reviewed for appraisal procedures, deadlines, appraiser qualifications, cost allocation, and the issues the appraisal panel is permitted to decide. TDI-filed property forms demonstrate that appraisal provisions can vary significantly, including their deadlines and scope.
What Should Be Reviewed in the Insurer’s Commercial Fire Estimate?
The insurer’s estimate should identify each part of the loss rather than combining unrelated categories into one generalized figure.
The estimate may deserve closer review when it:
- Omits equipment, fixtures, or tenant improvements
- Values specialized property using a generic substitute
- Includes only inventory with visible burn damage
- Treats smoke contamination as limited to the immediate fire area
- Omits HVAC, electrical, or mechanical evaluation
- Uses outdated or noncommercial labor and material pricing
- Rejects contractor bids without a meaningful comparison
- Excludes extra expenses without identifying the policy basis
- Applies unexplained or unsupported depreciation
- Uses the wrong deductible or applies a deductible more than once
- Applies a sublimit without identifying the relevant endorsement
- Applies a coinsurance reduction without explaining the property value or calculation
- Confuses the amount of the loss with the maximum policy limit
- Pays one category while omitting or denying another
The review may include the complete policy, endorsements, declarations, insurer estimate, contractor bids, equipment records, inventory reports, purchase documents, leases, contamination assessments, repair invoices, mitigation records, and communications with the insurer.
How Does Texas Law Apply to an Underpaid Commercial Fire Claim?
Texas Insurance Code Chapter 542 establishes claim-processing requirements that may apply to commercial property claims.
Subject to statutory exceptions, an insurer generally must acknowledge the claim, begin its investigation, and request reasonably necessary information within 15 days after receiving notice. It generally must accept or reject the claim within 15 business days after receiving the information reasonably required to reach its decision.
Texas Insurance Code Chapter 541 also prohibits certain unfair or deceptive insurance practices. Depending on the circumstances, these may include:
- Misrepresenting a material fact or policy provision
- Failing to provide a reasonable explanation for a claim decision
- Refusing to pay without conducting a reasonable investigation
- Failing to attempt in good faith a prompt, fair, and equitable settlement when the insurer’s liability has become reasonably clear
Chapter 541 identifies these and other practices as potentially unfair claim-settlement conduct, but whether a violation occurred depends on the specific policy, facts, investigation, and claim decision.
An underpayment does not automatically establish that the insurer violated Texas law. The policy, valuation provisions, estimates, investigation, business records, and claim-handling timeline must be evaluated together.
Learn more about Herrera PLLC’s representation of Texas policyholders and businesses.
How Can Jonathan Herrera Review an Underpaid Commercial Fire Claim?
Jonathan Herrera can compare the insurer’s payment with the policy, the affected property, the business’s records, and the documented cost of repair or restoration.
The review may include:
- The policy, declarations, and endorsements
- The insurer’s estimate and payment explanation
- Commercial contractor bids
- Equipment and fixture documentation
- Inventory and purchase records
- Tenant leases and build-out records
- Smoke and contamination assessments
- HVAC, electrical, or engineering reports
- Coinsurance calculations
- Extra-expense records
- Partial-denial letters
- Communications with adjusters and consultants
Because Jonathan previously evaluated property claims from the insurance side, he understands how insurers separate coverage categories, calculate depreciation, review inventories, compare estimates, and identify documents that can affect commercial claim value.
Herrera PLLC maintains a selective caseload. Jonathan personally handles each matter rather than transferring the claim to an associate or making a paralegal the business owner’s primary point of contact.
Learn more about the direct representation businesses receive from Herrera PLLC.
Speak With Jonathan Herrera About Your Underpaid Commercial Fire Claim
A commercial fire underpayment can leave a business without enough funding to rebuild its space, replace essential equipment, address contaminated inventory, or continue operating during repairs.
The insurer’s payment should be compared with the complete policy, each category of covered property, actual commercial contractor pricing, and the business records supporting the loss.
Herrera PLLC offers free, confidential consultations with no obligation. Commercial property insurance matters are handled on a contingency-fee basis, meaning no attorney’s fees are owed unless compensation is recovered.
Subject to the representation agreement, Herrera PLLC advances case-related expenses and is reimbursed only if compensation is recovered.
Call 832-891-3210 or email jherrera@jh-lawpllc.com to discuss your underpaid commercial fire and smoke damage claim.
Frequently Asked Questions
Common reasons include omitted equipment, undervalued inventory, incomplete smoke remediation, missing tenant improvements, low construction pricing, unsupported depreciation, a coinsurance reduction, or failure to account for available extra-expense coverage.
It may, depending on the policy, cause of loss, condition of the inventory, and applicable valuation provision. Smoke, soot, odor, heat, water, or fire-suppression materials can affect stock even when it was not directly exposed to flames.
Coverage depends on the policy, lease, ownership of the improvements, applicable limits, and whether the tenant or another party completes the repairs. Some policies also use different valuation methods when improvements are not promptly restored.
Potentially. Whether depreciation applies depends on the policy’s valuation provision and the property involved. The equipment’s age, condition, specifications, useful life, and available replacement options may affect the calculation.
Some commercial policies require the business to maintain insurance equal to a stated percentage of the property’s value. If the insurer concludes that the applicable limit was too low, it may reduce payment proportionally. The property value, percentage, limit, deductible, and any agreed-value endorsement should be checked carefully.
No. Extra-expense coverage generally addresses additional costs incurred to continue or restore operations. Business income coverage generally addresses qualifying income loss and continuing expenses during the applicable restoration period. Both depend on the policy.
The insurer may dispute a contractor’s proposed scope or pricing, but the disagreement should be supported by a meaningful comparison. Quantities, specifications, labor rates, material costs, necessary trades, and policy provisions should be evaluated line by line.
Possibly. Some policies allow appraisal for disputes about property value or the amount of loss. Appraisal may not decide whether a category is covered or whether an exclusion applies, so the policy’s exact appraisal provision should be reviewed first.
The paid and denied portions should be reviewed together. A partial payment does not establish that the insurer correctly evaluated inventory, equipment, tenant improvements, contamination, extra expenses, or other coverage categories.
Yes. Jonathan Herrera personally handles each matter and communicates directly with business owners throughout the claim review and legal process.