Using Forensic Accounting and Experts to Prove Lost Profits and Business Interruption Claims

When a restaurant or hospitality business in the United States suffers a covered loss—fire, HVAC failure, water intrusion, or a third-party liability event—lost profits and business interruption (BI) claims often represent the largest sources of indemnity. Successfully proving those losses requires rigorous forensic accounting, the right subject-matter experts, and precise documentation. This guide walks claims professionals, in-house risk managers, brokers, and litigators through practical steps to build, quantify, and defend lost profits and BI claims for restaurants and hotels in U.S. markets such as New York City, Los Angeles, Chicago, and Miami.

Why forensic accounting matters in hospitality BI claims

Restaurants and hotels have complex revenue drivers: multiple revenue streams (dine-in, delivery, catering, events), high variable costs (COGS, hourly labor), and fixed operating costs (rent, loan payments). Forensic accounting:

• Converts operational disruption into a defensible dollar figure using generally accepted accounting principles.
• Separates covered losses (lost revenues and incremental expenses) from uninsured factors (market trends, preexisting declines).
• Supports subrogation and recovery by documenting third-party fault and quantifying recoverable damages.

For legal admissibility, expert methodology must meet standards such as Federal Rule of Evidence 702 and Daubert reliability principles. See the rule text here: https://www.law.cornell.edu/rules/fre/rule_702.

Key evidence and documentation to collect immediately

First 48–72 hours are critical. In addition to standard FNOL steps, secure:

• Daily sales reports by POS, segmented by revenue stream (dine-in, takeout, delivery, private events).
• Bank deposits, merchant processor settlements, and historical credit card summaries.
• Payroll records, schedules, and tip pools.
• P&L statements (monthly, YTD) for 3–5 years; tax returns for ownership-level corroboration.
• Vendor invoices (food, linen, utilities, waste), lease and loan documents.
• Reservation and event logs (OpenTable, Resy, hotel PMS) showing cancellations.
• Digital evidence: CCTV timestamps, HVAC repair logs, utility outage notifications.
• Mitigation costs (portable kitchens, temporary relocation, marketing to restore customers).

Document chain-of-custody and preserve electronic logs; recover POS backups if servers were damaged.

Who to hire: expert roster and roles

• Forensic Accountant / Damages Expert — quantifies lost profits, incremental expenses, and mitigation; prepares reports, supports mediation/arbitration, and gives testimony.
• Hospitality Industry Expert / Restaurateur Expert — establishes industry standards, realistic recovery curves, and customer behavior post-loss.
• Economist or Market Analyst — isolates macroeconomic trends and market share changes.
• IT/Forensics Expert — recovers POS, reservation, and electronic transaction data.
• Structural/MEP Engineer — ties physical damage to operational shutdown periods and necessary remediation.

Internal link: Insurance Claims Handling for Hospitality Incidents: From First Notice to Final Settlement

Typical methodologies for computing lost profits

Common, accepted approaches include:

• Before-and-After (Historical Trend): Compare pre-loss sales trend to post-loss actuals adjusted for seasonality and market growth.
• Yardstick/Comparable: Use nearby, similar restaurants (same concept, area) to benchmark expected sales.
• Contribution Margin Approach: Focus on lost contribution margin (sales less variable costs) for calculating net income lost.
• Event-Specific Analysis: For large events (weddings, banquets), model lost contract revenue and associated cancellation costs.

Choice of method depends on data availability and period of interruption. Often a blended approach is best.

Sample lost profits calculation (illustrative — New York City bistro)

Assume a Manhattan bistro closed for 28 days after a refrigeration failure and partial property damage. Use contribution margin approach.

This simplified example highlights core components: lost gross sales, variable cost savings, and incremental expenses. A forensic accountant would refine with tax adjustments, fringe benefits, and fixed-cost amortization.

Pricing: what experts cost in major U.S. metros

Rates vary by firm size, expert experience, and metro. Typical ranges (2024 industry sources):

• Expert witness fees: $300–$700+/hour; trial/day fees $3,000–$12,000/day. Source: Expert Institute — How Much Do Expert Witnesses Cost? https://www.expertinstitute.com/resources/insights/how-much-do-expert-witnesses-cost/
• Forensic accounting consulting:
  • Boutique firms / independent CPAs: $150–$350/hr.
  • National consulting firms (FTI Consulting, BDO, KPMG Forensic, BARR Advisory): $350–$900/hr for senior-level specialists.
• Location premiums: Expect 20–50% higher rates in NYC and Los Angeles versus smaller markets like Cincinnati or Columbus. BLS wage data and regional cost of living drive these differentials: https://www.bls.gov/ooh/business-and-financial/accountants-and-auditors.htm

Named firms often retained in complex hospitality claims:

• FTI Consulting — forensic and litigation services (large-loss capacity).
• BDO Forensic & Litigation — industry-focused forensic accounting.
• EisnerAmper / Marcum / Cherry Bekaert — strong mid-market hospitality practices.
• Expert Institute — expert sourcing and marketplace for rates and scheduling.

Always obtain engagement letters outlining hourly rates, retainer amounts (commonly one to three weeks of estimated fees), and estimated total budgets for report preparation and deposition/trial.

Internal link: When to Invoke Subrogation After a Restaurant or Hotel Loss (and How to Do It)

Admissibility and defensibility — tips to avoid Daubert challenges

• Use recognized valuation/damages methodologies and document assumptions clearly.
• Reconcile financial statements to tax returns and bank records.
• Maintain reproducible workpapers and data files.
• Include sensitivity analyses showing how results change with realistic assumption ranges.
• Engage an industry expert to corroborate loss duration and expected recovery behavior.

Internal link: Reservation of Rights, Coverage Disputes and Working with Defense Counsel in Hospitality Claims

Mitigation, subrogation, and post-claim recovery opportunities

• Verify mitigation steps were taken (temporary kitchens, event relocation). Incremental mitigation costs are recoverable when reasonable.
• Capture third-party fault evidence early for subrogation (e.g., delivery driver negligence, vendor equipment failure).
• Coordinate recoveries across primary and excess layers; document allocation of recovered funds.

See also: Maximizing Recoveries After Equipment Failures or Third-Party Fault: Subrogation Strategies, Salvage, Mitigation and Proof of Loss: Documentation Insurers Will Demand from Restaurants

Practical checklist for claims handlers (restaurant & hotel focus)

• Immediately secure POS and reservation data; issue preservation letters to vendors.
• Retain a forensic accountant within 7–14 days for complex, high-dollar claims.
• Obtain engagement letter specifying scope: BI period, mitigation, subrogation support, deposition/trial.
• Request sample period of 36 months (or longer) to establish trend and seasonality.
• Budget for expert fees early—expect $25k–$150k+ for mid-size BI claims in major metros.
• Prepare a Daubert-ready report with reproducible calculations and robust sensitivity testing.

Conclusion

Proving lost profits and business interruption claims for restaurants and hospitality businesses requires a blend of financial rigor, industry expertise, and legal defensibility. Early preservation of POS and reservation data, the right forensic accounting methodology, prudent expert selection, and transparent budgeting are the keys to a successful claim and to maximizing recoveries. For complex or high-value losses in New York City, Los Angeles, Chicago, Miami, or other U.S. markets, plan for senior-level forensic resources and expect commensurate fees—but realize that well-supported claims significantly increase the likelihood of full recovery.

For related guidance on coordination, coverage disputes, and post-claim steps, review:

• Coordinating Multiple Insurers: Primary vs Excess Coverage Issues in Hospitality Claims
• Salvage, Mitigation and Proof of Loss: Documentation Insurers Will Demand from Restaurants