Avoid These 10 Mistakes When Filing Insurance Claims

Like many small business owners, you may make mistakes when filing insurance claims. Such mistakes are easy to make but can have serious consequences, including a delayed payment or even a claim denial. Here are ten common mistakes made by business owners as well as steps you can take to avoid them.

Failure to Notify Your Insurer Immediately

One common mistake is failing to contact your insurer right away about ​an accident or loss that is potentially covered by your policy. Don't delay! Call your insurer immediately. This is important for two reasons. First, claims are easier to adjust when events have just occurred and the evidence is fresh. Physical evidence and witnesses' memories fade over time.

Secondly, timely notice is a condition of coverage in most business insurance policies. Commercial property policies typically require prompt notice of any loss or damage. Most general liability and umbrella policies require you to notify the insurer as soon as practicable in the event of an occurrence, offense, claim, or suit. If you fail to report a loss or claim within a reasonable amount of time, your insurer may refuse payment.

If you prefer, you can report a loss or claim to your insurance agent or broker. The latter will forward the information to your insurer on your behalf. Your agent or broker will obtain the claim forms and help you complete them.

Poor Documentation

Poor record-keeping on your part may delay your recovery for a claim. Document every communication you have with your insurer regarding your claim. Record the time, date, and content of each verbal conversation. Keep all documents in a separate file so you can access them quickly. If you mail paper documents to your insurer, retain a copy of each for your file. Be sure to record the date the documents were mailed. If you speak with a claims representative or other ​insurance company employee on the phone, send that person a summary of the conversation in a letter or email.

When an accident or loss occurs, document the scene with a camera if you can do so safely. Take photos of your damaged property. Submit the pictures to your insurer when you file your claim. The photos can help verify your written description of the events and damaged property. 

Failure to Cooperate With Your Insurer

You may also delay your claim payment if you are uncooperative with your insurer. Your insurer needs your cooperation to settle your claim efficiently and effectively. If you fail to comply with the insurer's requests for information related to your claim, your actions may give the insurer grounds to deny coverage.

Many insurers attach written instructions to their policies regarding the procedures you must follow if an accident or loss occurs. Keep these instructions with your policy so you can review them before filing a claim.

You should also be familiar with the loss conditions in your policy. These outline the obligations you must fulfill under the insurance contract to obtain payment for a claim or loss. Many policies specifically state that you must cooperate with the insurer in the investigation or settlement of the claim. Liability policies also require you to cooperate in your defense.

Failure to Retain Damaged Property

If property at your premises or work site has been damaged by a fire or other peril, you might be tempted to throw it away. Don't do it! Leave the property as it is until an adjuster has inspected it. Otherwise, you could destroy valuable evidence of a loss.

Note that if property insured under commercial property or auto physical damage insurance is damaged, you are obligated to protect that property from further damage. For example, suppose a windstorm blows a hole in the roof of a building you own. You'll need to protect the roof from further damage by rain or other perils by covering the hole with a tarp or similar material.

Not Calling the Police

In some cases, you may violate the terms of your policy if you fail to call the police. Many commercial property policies obligate you to contact the police if a law has been broken. For example, vandalism is generally prohibited by law, so you must phone the police before filing a vandalism claim. The standard Business Auto Policy states that you must call the police if a covered auto or any of its equipment has been stolen.

You should phone the police following an auto accident even if you aren't required to do so under the policy. State law may obligate you to notify the police if anyone has been injured or killed, or if the accident has caused property damage that exceeds a certain dollar amount. A police report can benefit you and your insurer because it verifies the facts related to the accident or loss. The report can help speed up the settlement of your claim.

Paying Third-Party Claims Out of Pocket

If an accident occurs in which a third party sustains minor bodily injury or property damage, you may be tempted to compensate that person out of your company's pocket rather than file an insurance claim. This is a bad idea for several reasons.

First, injuries that seem minor at the time of the accident may become serious. Likewise, some injuries may not be evident right away. A person whose vehicle you damaged in an auto collision may develop whiplash several days after the accident.

Secondly, you are barred under your liability and auto policies from voluntarily making any payment, assuming any obligation, or incurring any expense without your insurer's consent. If you make a payment to someone who later files a claim or suit against you, your insurer may deny coverage for the claim on the grounds that you violated a policy condition.

Think twice before you make out-of-pocket payments for injuries to your workers. As noted previously, seemingly small injuries can become large ones. They can also generate lawsuits against your firm.

Not Questioning Your Insurer's Calculations

Most property and auto physical damage claims are settled based on the insurer's calculation of the value of the damaged property. Damaged autos are normally valued based on their actual cash value (ACV). Damaged commercial property may be valued according to its actual cash value or its replacement cost.

No matter how your damaged property is valued, you should obtain realistic estimates of the cost to repair or replace it. Don't assume that your insurer's estimate of these costs is accurate. Repair and replacement costs vary widely from place to place. Construction costs in Manhattan are significantly higher than those in Omaha.

If the value of your property is difficult to assess, consider hiring a public adjuster to assist you. An experienced public adjuster will calculate your repair or replacement costs for you and guide you through the claims process. This person will negotiate with the insurer's adjuster on your behalf to obtain a favorable settlement.

Admitting Your Were at Fault

When an accident occurs in which someone else is injured or their property is damaged, don't admit liability. There are several reasons for this. For one thing, the cause of the accident may be different from what you think. The accident may have involved factors that weren't apparent when the incident occurred.

Secondly, the injured party might file a claim against you. Your acceptance of responsibility could impair your liability insurer's ability to defend you against the claim.

Thirdly, liability policies prohibit policyholders from assuming any obligation without the insurer's consent. An admission of fault might constitute a breach of the insurance contract, which could be grounds for the insurer to deny coverage for the claim.

Failing to Follow Up With the Adjuster

Once you've filed a claim, you can sit back, relax, and wait for payment from your insurer, right? The answer is no! Don't lose track of your claim. If several weeks go by and you haven't heard from the adjuster, follow up with an email or phone call. Ask for a progress report.

Failing to Read Your Policy

Few business owners enjoy reading insurance contracts. Yet, reading your policy is essential as you need to understand what it does and doesn't cover. Read your policy as soon as you receive it from your insurer. If you have trouble understanding the wording, ask your agent or broker for assistance. Review your policy again before you file a claim. Be sure you understand the duties you are obligated to fulfill to obtain payment for a loss.