Claim Definition

The "Legal-Ease" Glossary
Claim

This is a formal request for your insurance benefits (i.e., compensation) that you file with your insurance provider.

But just because a claim is filed doesn’t guarantee a payout. First, the insurance provider must review the claim to make sure your policy covers the event. Then, it must decide how much money to pay out, which can depend on your deductible, policy limits, and amount of damage.

Here’s how the process works, in a nutshell:

  • Your business suffers a loss that you believe is covered by your insurance policy. For this scenario, say your small bakery is hit by a storm. In addition to a broken store window, a downed tree has knocked out a power line – which means your oven, refrigerator, and registers are out of commission. You stand to lose many perishable food products and revenue while you wait for the city to repair the line and contractors to fix your window. You make a claim on your Property Insurance policy, which includes Business Interruption Insurance, to cover the repair costs and reimburse you for your lost income.
  • You file a claim with your insurance provider. A representative will take over the investigation of the claim and negotiate payment.
  • The insurance company sends out an appraiser. The appraiser evaluates the damage to determine how much the repair costs will be. (You can learn more about this process in our entry for “appraisal.”)
  • You receive your benefits if the claim goes through. This largely depends on what the appraiser reports.

Sometimes, things don’t go according to plan. For example, if a policyholder hasn’t paid their premiums or their deductible hasn’t been met, they won’t be able to access their benefits. And if the policy doesn’t cover the event that caused the damage, the policyholder is out of luck.

In the example above, the baker’s claim could be rejected if their Property Insurance doesn’t offer coverage for broken windows. Their claim for income reimbursement might only be viable if they’ve suffered 72 hours of business interruption and their Property policy covers damages caused by power outages.

Also worth noting is that certain liability insurance policies (including Errors and Omissions Insurance) are written on a “claims-made” basis. Essentially, this means your claim must meet the following two conditions in order for you to receive benefits:

  • The incident that sparked the lawsuit happened while your policy was active.
  • That same policy is still in effect when you filed the claim.

It’s important to always read your policies carefully. You don’t want to assume you have coverage for a certain event only to find out later that you don’t.

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