Business insurance claims are requests policyholders make to their insurance carriers after a loss or when a covered peril occurs. First, the policyholder demonstrates either the loss or peril happened, then the carrier investigates to determine if the event is covered. If it is, the carrier covers the policyholder’s expenses up to the policy limits.
Here are six steps for filing business insurance claims:
1. Record the Damage Your Business Sustained
Business owners are responsible for demonstrating their losses, and that typically requires physical evidence. Documenting physical damages is fairly easy through pictures and police reports. However, properly documenting liability claims typically requires a system that records incidents before incidents to have evidence on hand in case of a lawsuit.
File Police or Incident Reports
When business insurance claims involve property damage or physical injury, policyholders should contact the appropriate authorities. Most commercial property insurance won’t pay for damage caused by theft, vandalism, or other criminal activity if business owners don’t have police reports, and getting immediate medical attention for injured customers and employees can reduce your risk of being sued.
Business owners should also have a system for recording incidents that could develop into claims. That system can be a simple as a form that includes the injured party’s name, witness information, a description of the incident, and details about medical treatments. Having an incident report records the information when it is fresh in everyone’s mind and can be used as supporting evidence in business claims or lawsuits.
Take Pictures or Videos of Damages
While insurers typically send adjusters to document losses, business owners should take pictures or videos of their damages, too. They can use these images as evidence of the initial loss, which is important if they need to make temporary repairs before their claim is settled. Moreover, the business owner is the best person to identify missing or damaged property.
Business owners should also take pictures or video of any third-party injuries and property damage. Pictures can demonstrate the extent of a customer’s injury and video may show who is actually at fault. This information can be valuable if the customer sues.
2. Mitigate Your Damages
One of the policyholder’s duties listed in commercial property insurance is to take reasonable steps to protect covered property from further damage. Standard policies typically state the insurer will not pay for subsequent damages after the initial loss, so this step is an important one for business owners to take.
Make Temporary Repairs
Once business owners have determined their location is safe and have documented the damage, they should make repairs to reduce the chance of further damage. Policyholders who rent their workspace and only have coverage for their business personal property aren’t responsible for the structure, but they should notify their landlords and try to reduce damage to their belongings.
Some repairs business owners may make include:
- Boarding up windows
- Covering exposed areas
- Removing debris
- Securing broken locks
- Separating damaged inventory from undamaged inventory
Whether business owners rent or own their workspace, they should save receipts for any repairs they make. Some commercial property insurance policies reimburse this cost.
Get Estimates on Permanent Repairs
Business owners do not have to wait for their claim to be processed before getting estimates. Instead, they should start getting bids for major repairs as soon as possible. These estimates can also help substantiate their claims.
3. Review Your Insurance Policy
The next step for business owners is to review their insurance policies to find out what specifically they cover. Each policy should have one section outlining the damages or events that trigger coverage and another section listing any exclusions. Additionally, business owners should look for certain policy provisions that impact their coverage.
For example, some liability policies have a defense within limits provision, which means all legal fees come out of the coverage limits stated in the policy. Policies without this provision have separate limits for defense cost, so the insured’s attorney’s fees, court costs, and any settlements or judgments do not reduce the overall coverage amount.
Insured’s Duties in a Business Claim
Business owners’ responsibilities after a loss are spelled on in their insurance policies. In general, they must give prompt notice of a loss and give their insurance provider any information they require.
“The most important thing for small business owners to keep in mind is to start the process as soon as they think they may have a claim. Delaying this process allows time for additional, unrelated damages to be incurred, which may prejudice the insurance company’s review. The faster an incident is reported, the faster the insurance paperwork will be filed, and the insurance company can start and conclude its investigation.”
— Maureen Le Piane, J.D., Senior Vice President, Small Business and Portfolio Underwriting, Hiscox USA
Other obligations are more policy-specific. In business liability claims, insureds are required to assist their insurer in their defense. That may mean sending copies of any summons or demands, attending depositions, sharing contracts and emails, or negotiating a settlement. For property claims, insured may have to testify under oath, allow claims professionals to inspect their property, mitigate their damages, and provide an inventory of damaged and stolen property.
Insurance Provider’s Duties in a Business Claim
Business owners should look for the phrase “right and duty to defend” in the insuring agreement of their liability policies. This explicit language obligates their insurer to defend them in claims even when the claim is without merit. It also means the insurer may take control of the litigation process by hiring counsel and determining settlements.
Without this language, an insurer may only be obligated to reimburse the policyholder’s defense costs, and this places the management of any lawsuit on the insured.
Additionally, insurance providers have a legal responsibility to act in good faith throughout the claims process. In general that means they have to work in their client’s best interest, thoroughly investigate and process the claim in a timely manner, and provide a written explanation if the claim is denied.
Some insurers’ claims practices that can be deemed unfair or not in good faith include:
- Misrepresenting coverage
- Failing to follow reasonable timelines
- Failing to explain why a claim was denied in a prompt manner
- Instructing policyholders not to retain an attorney
These duties are not typically listed in a policy. Instead, they are a matter of state law.
Professionals who may face allegations of negligence should also look for a claims-made provision in the insuring agreement section of their liability policies, especially in errors and omissions policies. This clause indicates the policy was written on a claims-made basis, so the insurer only pays if both the triggering event occurs and the lawsuit is filed when the policy is active.
This can be a problem for professionals who face a lawsuit after their claims-made policy has expired ― say a client files a lawsuit after an accountant has discontinued coverage. Even if the incident that triggers the lawsuit happened while the policy is in effect, the insurer can deny the claim because the lawsuit was filed after the policy terminated.
4. Decide If You Should File a Business Insurance Claim
Once policyholders have reviewed their coverage, they have to decide if they’re going to file a business claim. In some cases, it’s not up to them. Liability policies often require insureds to notify carriers of lawsuits or risk having claims denied. However, insureds should still consider their claims history, deductibles, and the potential cost to their businesses.
When to File Business Insurance Claims
Certain circumstances make filing business insurance claims the right move. The most obvious is any situation where you can’t afford to make repairs or pay for damages. When that happens, filing a claim can help keep your business open while also protecting your personal assets.
Other situations where policyholders may want to file business insurance claims include:
- Large losses: Business insurance is designed to help owners survive catastrophes that would otherwise force them to permanently close, so they should file business claims when disaster strikes
- Liability lawsuits: Professional and general liability insurance policies typically require insureds alert their carriers once a lawsuit has been filed.
- Suspended operations: Policyholders with business interruption insurance can file a claim when covered events force them to temporarily close to help pay for lost revenue and ongoing expenses.
- Aggregate deductibles: An aggregate deductible is the total amount an insured owes on all claims over the life of a policy. The insurer doesn’t pay any business claim until the aggregate deductible is met.
- Good claims history: Insurers may charge policyholders higher premiums if they’ve filed multiple business claims, so business owners who haven’t made many can feel more comfortable using their insurance to cover losses.
When to Not File Business Insurance Claims
Business owners pay insurance premiums to protect their assets when losses occur. However, that doesn’t mean every loss should result in a business claim, especially since insurers may increase premiums for business owners with multiple losses. Consider your claims history can follow you for up to seven years, there are times you should think twice about filing a claim.
Examples of when policyholders should avoid filing business insurance claims include:
- Their repair costs are lower than their deductible: Filing business claims for minor damage may not be worth the hassle or the increase in premium. If repair bills are below or just above your deductible, consider paying them out of pocket.
- They’ve filed multiple claims: The more claims a policyholder files, the riskier they look to insurers, who then protect their bottom line by charging higher premiums. Business owners may pay less on current and future policies by avoiding business claims.
- They’re worried about being dropped by their insurer: Insurers can choose not to renew a policy for any number of reasons, and multiple claims is one of them. Moreover, they may opt not to renew for certain types of claims, such as water damage.
Choosing to not renew a policy is different from canceling it. Cancellations occur during the policy term, and insurers usually can’t cancel a policy just because the insured filed claims. However, they can wait for the policy to expire and then decide not to renew it.
5. Notify Your Insurance Provider
Policyholders are required to notify their insurance provider of insurance claims as soon as it is practical to do so. Sometimes that’s as simple as calling their agent who can then walk them through the steps of filing a business claim. However, some carriers also offer online claims management platforms that may make the process even easier.
Top Business Insurance Companies for Claims Management
The best online claims management systems let policyholders file business claims, submit documentation, and track their claims’ progress, but these aren’t the only features to consider when selecting a provider. For instance, some small business insurance companies have regional claims offices so adjusters can inspect properties sooner.
Some providers even give their adjusters the authority to settle claims without waiting for carrier approval. Working with a provider who offers these services may help you reopen faster after a catastrophe.
6. Gather Important Documents for Your Business Insurance Claim
In addition to pictures and videos, policyholders need written records to either support or substantiate their business insurance claims. Liability and property claims usually require different types of documentation.
Documents Required for a Liability Insurance Business Claim
In liability claims, business owners are required to assist in their defense. In part, that means attending depositions and providing testimony, but it can also include gathering written records that support their version of events.
Depending on the type of liability claim, documents business owners may need include:
- Witness statements
- Repair bills
- Medical bills
- Change orders
- Meeting notes
Some of these documents may be created through the normal course of business. However, others require forethought on the part of business owners.
Documents Required for a Property Insurance Business Claim
Property claims often require documents that establish the value of the damaged property, such as receipts and appraisals. Business owners also need two or three estimates for the cost of repairs. Standard property insurance policies also requires business owners create an inventory of damaged and undamaged goods.
Business owners also need to submit a proof of loss form to their insurer. This is a formal, notarized statement that summarizes the loss and the supporting evidence that needs to be handed in on the insurer’s timeline, usually 60 days after request. Failing to meet this deadline can result in a claim being denied.
Documents Required for a Business Interruption Insurance Claim
Business owners who have business interruption insurance can get reimbursed for their lost revenue, ongoing expenses, and temporary relocation costs. This compensation requires documentation in addition to that which is required for a property insurance claim.
Some of the items required for business interruption insurance claims include:
- Tax returns
- Sales tax returns
- Sales, production, and inventory records
- Bank statements
- Relocation costs
- Payroll records
Business owners also need to keep track of expenses incurred after the loss, such as increased freight charges, overtime for employees, and increased manufacturing costs.
7. Work With the Claims Adjuster
For property claims, insurers typically send adjusters, or claims handlers, to inspect damages. The adjuster collects the business owner’s information, assesses the damages, and determines the amount the insurer should pay. Sometimes adjusters can settle claims immediately. However, claims adjusters work for insurers, not policyholders, so many business owners hire public adjusters.
How to Work with a Claims Adjuster for Business Claims
Once a claim is filed, adjusters may simply call policyholders to gather information after a minor claim. Major claims usually require an in-person inspection. Business owners are required to allow the adjuster on their property, sometimes more than once, and they must let the adjuster take samples of damaged and undamaged property.
Other ways business owners can assist claims adjusters include:
- Preparing for the inspection: Business owners can prepare for the inspection by recording damage and witness statements. They might also want to write out a list of questions for the adjuster.
- Being honest: Business owners who exaggerate their losses may be flagged as potentially fraudulent. However, minimizing losses can also hurt their chances of receiving appropriate compensation.
- Not altering their property: Adjusters need to see damage as is, so while policyholders are required to protect their property, they don’t want to remove all evidence of damage. Business owners should take pictures of damage before they make temporary repairs.
Consider Hiring a Public Adjuster for Business Claims
Since claims handlers work for insurance companies, many business owners hire public or independent adjusters for business insurance claims. An independent adjuster can provide an objective evaluation of the business’s damage and can often help get estimates for repairs. Some adjusters even help in negotiations over claim settlements.
While public adjusters can be helpful, most only work on major claims. Additionally, public adjusters charge fees, usually 10% – 20% of the final payout. Hiring an independent adjuster can also make the claims process longer since they will need time to inspect damages separate from the insurance company’s adjuster.
8. Close Out Your Claim
Depending on the type of claim, insurers have 30 days to accept or deny claims in most states. Insurers that deny claims must inform the policyholder in writing, otherwise they typically have 30 days to send payment. Business owners usually have to sign a form acknowledging they’ve received payment or an explanation of the denial.
How to Appeal Your Business Insurance Claim
The insurer’s decision is not the final word on a business insurance claim. Most insurance companies have an appeal process in place. This usually starts with notifying the insurer of the dispute and outlining the basis of the disagreement, often by certified letter. The insurer then sends a second claims adjuster to re-evaluate damages and potentially reverse the original settlement.
Some commercial property insurance policies have appraisal clauses to explain how the claim disputes will be handled. Usually this involves both parties hiring independent appraisers who work together to hire an arbitrator. The appraisers then review the evidence and try to come to an agreement about the amount of loss. If they can’t come to an agreement, the arbitrator makes the final ruling.
However, if the insurer refuses to pay or the policy does not have an appraisal clause, the policyholder may opt to sue in civil court. Lawsuits take time and money, so business owners should review the insurance company’s denial letter and their policy carefully before they decide to sue. They may also want to consult an attorney to determine if litigation is a good idea.
Tips for Filing Business Insurance Claims
Filing business insurance claims can be difficult because of the steps involved but also because policyholders are often in the middle of a traumatic event. These five tips can help make the process easier.
1. Keep Your Insurance Policies Offsite
You need policy information when you report a claim, so it’s a good idea to have on hand when you report. However, you may not have access to it if your policy is at your business location is unreachable. Keep copies of your business insurance policies and other important documents in a separate location.
2. Take an Inventory of Your Business Property
Having an inventory of your covered business property can make filing a business insurance claim easier. In the aftermath of a catastrophe, you may have a hard time remembering what belongings you had, let alone their value.
3. Get Everything in Writing
Written documentation typically carries more weight in a lawsuit than oral testimony, so business owners should make every effort to all of their interactions with both their insurer and their customers. Keep notes on meeting and phone conversations, and send an email outlining your understanding of the conversation afterward.
4. Start a Claim File
Once you’ve filed a business insurance claim, you want to keep all of your documentation in one place so you have it available if your insurer asks for anything. Your claim file should include your claim number, your claims handler’s contact information, your written notes, and any records that substantiate your loss.
5. Ask for an Advance on Your Claim
Some companies offer advances on business insurance claims. This money comes out of the final settlement and can help business owners get their property fixed or cover third parties’ medical bills. These actions usually keep problems from getting out of hand and costing more, so it’s a good idea to ask your company if they offer advances.
Most business owners hope to never use their insurance. Unfortunately, this attitude works against them when the time comes to file a business insurance claim. That’s the moment they have to act quickly and appropriately or else they risk not receiving the compensation they are owed. Knowing what to do and planning ahead for the possibility of a claim can help make the process easier.
Business owners who want to partner with a top insurer with excellent claims services should check out The Hartford. With more than 50 adjusters across the country and a mobile catastrophe response team, The Hartford offers quick response times to help get business owners back to work faster.