So it appears you are connecting to the controller using an RS232 connection. I think that could be the issue.
During the firmware update the controller may restart a couple times. This is a normal part of the upgrade process. When it restarts, you lose communications briefly. But since the serial connection is very slow, I suspect it is not able to reconnect fast enough, and the update tool is detecting a timeout. I saw this issue with disconnection more commonly when using a USB to Serial adapter for my PC. Back when my PC had a real serial port I rarely saw connection (or disconnection) issues.
Is it possible to connect with the controller using Ethernet? Is there an Ethernet module in the chassis? If you can connect using Ethernet the whole upgrade process is faster and you shouldn't have an issue reconnecting when the controller restarts.
You might also try using the ControlFlash utility to do the firmware upgrade instead of doing the upgrade as part of a download. The ControlFlash utility should have been installed either when RSLogix was installed or it would have been installed with the downloaded firmware.
OG