6 mistakes small business owners make when filing insurance claims
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Whether a customer slips and falls in your store, a fire destroys your restaurant's kitchen, or a crane breaks down at your construction site, business risks come in many forms—and they all can have a devastating impact on your bottom line.
Commercial business insurance is essential for managing these risks. For example, if a customer who gets hurt on your business premises sues your small business, a general liability insurance policy would cover the costs of a lawsuit, including attorney's fees, the customer's medical bills, and any settlements or judgments.
But filing insurance claims can be tricky, and many business owners make mistakes that can cost them a substantial amount of money. Here are the most common claims-filing errors and how to avoid them.
- 1. Being unfamiliar with your policy
- 2. Not contacting your insurer immediately
- 3. Not documenting damage
- 4. Getting rid of damaged goods
- 5. Admitting you were at fault
- 6. Failing to advocate for yourself
- When it may not make sense to file an insurance claim
- What to do if your insurance claim is denied
- Get the right insurance coverage that meets your business's needs
1. Being unfamiliar with your policy
Many business owners assume commercial property insurance will cover property damage caused by floods, earthquakes, and other natural disasters. But that's not always the case.
Insurance policies are complex and don't always cover everything you expect. Filing an insurance claim for something that isn't covered is a waste of time and can leave you with unexpected expenses.
When you choose your policy, take the time to learn exactly what's covered. This can help you identify coverage gaps and decide what additional policies you may need to fully protect your business.
2. Not contacting your insurer immediately
You need to contact your insurer immediately after any business-related mishap. The details of the property damage and your memory of it will be fresher the sooner you file. Plus, claims are easier to adjust the earlier you make them.
Most insurers have quick-response teams to survey a situation and assess damages. But if you bail out a flooded warehouse before the insurance adjuster arrives, they could reduce your payout.
Almost all commercial property, general liability, and umbrella insurance policies require notification as soon as possible after an event. Failure to report an incident within the first 48 hours may cause your insurer to refuse payment.
3. Not documenting damage
Your insurer will want to see proof of damage from a disaster or accident. Failure to thoroughly document that damage may result in a lower payout or a denied claim. Your documentation should include:
- Photographs of the scene, damaged goods, destroyed property, or anything else that needs to be repaired or replaced
- Receipts, estimates, and other financial records tied to the incident
- Records of times, dates, and communications with your insurer
If you speak with a claims representative over the phone, email them with a summary of the conversation or request a transcript of the call. This documentation will help ensure your insurance company honors your policy to its fullest extent.
4. Getting rid of damaged goods
Documenting damage is an important step, but don't throw damaged property away after taking photos. Physical evidence is important, and you should hold on to everything to prove the extent of your loss. This evidence will likely impact an insurance adjuster's report.
If your property is damaged, you must take reasonable steps to prevent further damage. Failing to do so could be considered negligence and may give your insurance company grounds to deny coverage.
If you spend money on temporary repairs to prevent further property damage, save your receipts and submit them to your insurance company for reimbursement.
5. Admitting you were at fault
If someone gets injured on your business premises, don't admit fault. Frivolous lawsuits happen all the time, and taking responsibility when a customer is harmed on your property can come back to hurt you later.
Admitting fault before knowing all the facts will:
- Remove any doubts about who's at fault. Even a simple, “I'm sorry, that's on us,” can be used as evidence in a lawsuit, making it harder to argue other factors, like weather or other third parties, contributed to the accident.
- Impair your insurer's ability to defend you. Taking responsibility can weaken or eliminate your insurance company's defense strategy.
- Violate your policy's terms. If your policy prohibits you from admitting fault or offering to pay for damages without your insurer's consent, this is a breach of contract and could result in a denied claim or policy termination.
Rather than admitting fault, focus on the person's injury and medical care, document the incident, and let your insurer and attorney handle the question of liability.
6. Failing to advocate for yourself
Arguing with your insurance carrier over a claim will never help your case. You want to be cooperative, but don't simply accept anything your provider says. For example:
- Be realistic about the value of your damaged property. Some insurers may initially undervalue lost property. Having a clear, well-documented damage assessment can help you receive a suitable payout. Damaged commercial property is generally valued according to its actual cash value or replacement value.
- Don't be afraid to appeal an adjuster's initial damage estimate by getting a second opinion. If the two adjusters have significantly different values, a third-party mediator will usually make a final decision on the payment amount.
Most insurers attach instructions to their policies that you must follow if an accident or loss occurs. It's important to follow the steps but be prepared to advocate for yourself when necessary.
When it may not make sense to file an insurance claim
Sometimes, filing an insurance claim can cost you more in the long run. Here's how to determine whether you have a worthwhile insurance claim:
- Compare the loss to your deductible. If the amount you need to pay before coverage kicks in is only slightly less than the estimated loss, the payout might be too small to justify filing. For example, a landscaping company with $1,200 in equipment damage but a $1,000 deductible may find it simpler to pay for the repairs directly rather than file a claim.
- Consider your claims history. Having a record of small, frequent claims can affect underwriting and renewal decisions. For minor losses, paying out of pocket can keep your claims history clean and could be more cost-effective in the future.
- Ask an expert. Sometimes you need to review your options with an experienced insurance professional. If Insureon is your broker of record (BOR), our licensed insurance agents are here to help you decide if you should file a claim.
Even if you decide not to file a claim, make sure to thoroughly document the incident. Having photos, repair invoices, a timeline, and a brief description can protect you if related costs come up later.
Should you file a claim?
While every situation is unique, these are some general guidelines you can consider when deciding whether it’s worth it to file a claim or if paying out of pocket would save you more money.
| Factor | Yes, file a claim | No, don’t file a claim |
|---|---|---|
Damage cost | The damage is very high, costing substantially more than the deductible you’ll pay first | The damage is near or below your deductible amount |
Deductible | You have the cash to pay your deductible | Paying the deductible will hurt your cash flow |
Policy limits | Your repairs will be covered | Your coverage is too low, or the specific problem is excluded from your policy |
Fault | Another person or business is entirely at fault, and their insurance will pay for it | The damage was your fault or a natural disaster that your policy won’t cover |
Future costs | You need help to stay in business, and the risk of closing is worse than higher insurance rates | You have minor damage and filing a claim might cause your premiums to go up next year |
What to do if your insurance claim is denied
If your insurance claim is denied, don’t panic. Here’s what to do next.
Review the denial letter carefully
Your insurer is required to state why a claim was denied. Review the explanation closely to understand whether the issue relates to:
- Policy conditions, like policy limits, premiums, or deductibles
- A coverage gap or policy exclusion
- Missed deadlines
- Inadequate documentation
Gather additional documentation
Missing information is one of the top reasons a claim is denied. Review what you submitted initially to spot any missed details. Then collect additional documentation to share with your insurer, including:
- Invoices and receipts
- Contracts
- Photos and written communications
- Maintenance records
Providing anything that substantiates the cause of an incident and the resulting loss can help your case with the insurance company.
Ask for clarification
Contact your claims adjuster and request a more detailed explanation of the decision and the specific policy language. Having the decision-maker walk you through the exact policy clause or terms they based their denial on can help you compare it against your own copy of the policy.
Appeal if appropriate
Many insurance companies have a formal appeal process that reviews a decision before it’s considered final.
This is your opportunity to submit additional evidence that may convince them to overturn their decision, including anything you uncovered during your review of their denial.
Consider professional assistance
For complex or high-value claims, an attorney or public adjuster may offer valuable assistance, helping to explain policy language and uncover options you may not have considered.
Professional assistance can also be useful when the issue is more about paperwork and process rather than a coverage dispute.
Remember, an initial denial doesn't always reflect the outcome. Taking the time to understand the decision is the first step toward determining whether additional action is warranted.
Get the right insurance coverage that meets your business's needs
Insureon helps small businesses secure affordable insurance coverage from top-rated U.S. insurance carriers. You can get free, customized insurance quotes with one easy online application, and our licensed insurance agents can help you select the best coverage for your small business.
Once you find the right policies for your small business, you can begin coverage and get a certificate of insurance (COI) in less than 24 hours.
Julie Watt, Content Editor
Julie writes blog posts and site content that breaks down complex topics, provides expert advice, and helps connect small business owners with the best insurance solutions. Before joining the Insureon team, Julie worked as a copywriter and content strategist for ad agencies and in-house creative marketing teams to bring brand stories to life and connect loyal consumers with quality products. She’s built and led copy teams at companies such as T.J.Maxx, Amazon, and BISSELL.
