5 Manufacturing Insurance Gaps That Could Shut Down Your Texas Operation

Most Texas manufacturers carry insurance. The problem is that carrying insurance and being properly covered are two very different things.

A standard commercial policy can look complete on paper and still leave your operation exposed in ways that only become obvious after a claim. The gaps tend to show up at the worst possible moments — a major equipment failure, a product recall, a supply chain disruption — when the financial stakes are already high.

Here are the five coverage gaps we see most often when reviewing manufacturing insurance programs in Central Texas, and what you can do to close them.

Gap 1: No Equipment Breakdown Coverage

This is the most common gap we find, and it catches manufacturers off guard because it sounds like it should be included in commercial property insurance. It is not.

Standard commercial property policies cover damage from external events — fire, windstorm, theft, vandalism. They do not cover mechanical or electrical breakdown of the equipment itself. If your CNC machine seizes, your boiler fails, or your HVAC system shorts out, a property-only policy will not pay for the repair or replacement.

For manufacturers, equipment breakdown is not a hypothetical risk. Production equipment runs hard, often around the clock, and mechanical failure is a matter of when, not if. The cost of repairing or replacing a single piece of critical machinery can run from tens of thousands to well over a million dollars — and that does not include the lost production time while the equipment is down.

Equipment breakdown coverage (sometimes called boiler and machinery coverage) fills this gap. It covers the cost of repairing or replacing covered equipment after a mechanical or electrical failure, and it can also include the income you lose while production is halted. If your operation depends on specialized machinery, this coverage is not optional.

Gap 2: Business Interruption That Does Not Match Your Actual Revenue

Business interruption insurance replaces lost income when a covered event forces you to slow or stop production. Most manufacturers have it. Far fewer have it set at the right limit.

The problem is that business interruption limits are often set at the time the policy is written and then left unchanged for years. If your revenue has grown — and for most Texas manufacturers it has — your current limit may only cover a fraction of what you would actually lose during a shutdown.

There is also a subtler issue: the waiting period. Most business interruption policies have a waiting period of 48 to 72 hours before coverage kicks in. A short disruption that falls inside that window produces no claim payment at all, even if the financial impact is real.

When reviewing your business interruption coverage, ask two questions. First, does the limit reflect your current annual revenue, not what it was three years ago? Second, does the waiting period align with how quickly a disruption would actually affect your cash flow? If the answers are no and no, your program has a gap.

Gap 3: Product Recall Costs Are Not Covered by Product Liability

Product liability insurance covers you when a product you manufactured injures someone or damages property. What it does not cover is the cost of recalling that product before it causes harm.

Those are two very different financial exposures. A product recall — even a voluntary one — can involve notifying customers, pulling inventory from distribution, destroying affected product, and managing the public relations fallout. For a mid-size manufacturer, recall costs can easily reach six figures before a single lawsuit is filed.

Product recall coverage (sometimes called product contamination or product withdrawal coverage) is a separate policy or endorsement that specifically addresses these costs. It is particularly important for manufacturers in food and beverage, consumer goods, medical devices, and any industry where a defect could trigger a regulatory recall.

If your current program does not include product recall coverage, you are managing one of your most visible risks with no financial backstop.

Gap 4: Contingent Business Interruption Does Not Cover Your Supply Chain

Standard business interruption coverage protects you when something happens to your own facility. It does not protect you when something happens to a key supplier or customer that forces your operation to slow down or stop.

This is called contingent business interruption, and it is a gap that became painfully visible to manufacturers across every industry during the supply chain disruptions of recent years. If your primary raw material supplier has a fire, a flood, or a shutdown — and you cannot source that material elsewhere quickly — your production stops. Your standard business interruption policy will not respond because the triggering event did not happen at your location.

Contingent business interruption coverage extends your protection to named suppliers or customers. It is not a standard inclusion in most commercial policies, but it is available as an endorsement or through a more comprehensive commercial package. For manufacturers with concentrated supply chains or single-source dependencies, it is worth a serious look.

Gap 5: Workers' Compensation Limits That Do Not Account for Your Actual Workforce

Texas is the only state that does not require most private employers to carry workers' compensation insurance. Some manufacturers opt out, either to reduce premium costs or because they believe their safety record justifies the risk.

That calculation changes significantly when you consider the actual cost of a serious workplace injury. A single lost-time injury involving surgery, rehabilitation, and extended time off work can generate medical and wage-replacement costs that dwarf years of workers' compensation premiums. And without coverage, your business absorbs those costs directly — along with the legal exposure that comes with an injured employee who has no workers' comp claim to file.

For manufacturers who do carry workers' compensation, the gap often shows up in classification codes. Workers' compensation premiums are calculated based on job classifications, and misclassified employees — particularly in operations where workers perform multiple roles — can result in both incorrect premiums and coverage disputes at claim time. An annual review of your workforce classifications is a straightforward way to make sure your coverage matches your actual payroll.

How to Find and Close Your Gaps

The most reliable way to identify coverage gaps in a manufacturing insurance program is a structured policy review — not a quick comparison of premium totals, but a line-by-line examination of what each policy covers, what it excludes, and whether the limits reflect your current operation.

At Silva and Sons Insurance Services, we work with Texas manufacturers across a range of industries to review existing programs and identify exposures that standard policies leave unaddressed. We are based in Liberty Hill and serve manufacturers throughout Central Texas, the Austin metro, and the surrounding Hill Country region.

If your manufacturing operation has grown, changed, or simply not had a thorough insurance review in the past year or two, now is a good time to take a closer look.

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