So when should you file a claim on your business insurance policy? The short answer is: ASAP.
Filing a claim against your business insurance is something no one looks forward to. The idea that your small or medium-sized business is at risk of a loss is terrifying enough, having the possibility of a claim denied is worse.
Even if you plan on handling the claim out of pocket and on your own, it is your contractual responsibility to notify the insurance company of any potential claims or losses.
Here is one fundamental reason that even if you decide to handle this outside of the insurance company, it's still a smart business idea to notify the company.
For starters, there is no way to know in the beginning stages of a loss precisely what the damages or financial impact is. Your assumption might be that the loss is small, and can be handled out of pocket, however when you get to the middle or end of the process, you come to realize that the damages are far higher than what you assumed.
In this scenario, because you failed to go through the proper protocols, the insurance company can now deny your claim, leaving you with the responsibility to indemnify (make whole) the other party.
How can an insurance company deny my claim?
Written into the contracts of most West Virginia business insurance policies is a stipulation called "Duty to Defend." What this clause states, is that you, as the insured, must give the insurance company the ability to mitigate (settle) as soon as possible.
It is always in the insurance companies best interest to settle for a smaller amount upfront than to go through the entire claims and possible legal process. It is also in your best interest to go through this process.
Here is an example: Let's assume your policy will cover you for $1,000,000 in liability claims. If the insurance company can settle for $500,000, they will attempt to do so. If your claim went through the entire process and determined that you are liable for $1,250,000, you are then responsible for the additional $250,000 after your policy limit is reached.
Another vital clause to consider when purchasing your business insurance policy is to make sure you understand how defense costs are covered.
The two types of coverages are "inside of limits," and "outside of limits." Depending on how your policy reads, will determine if you can fight the claim and settle, or not.
If your business insurance policy has "outside limits," that means if you lose the lawsuit, and your policy limits are exhausted, you will be responsible for the difference in damages.
An example of this would be: The insurance company can settle a claim for $10,000. If you elect to fight the allegation made against you and lose, you will be financially responsible any payout over $10,000.
At Songer Insurance Agency Inc., we advise our clients to have "outside limits" written into their business insurance. The reason is that we want every dollar of your coverage going towards a possible claims payout, and not towards items such as legal fees which can eat into your coverage limits if you elect to go with "inside limits."
Another essential factor to consider is knowing the time allowed to make a claim.
There are two types of limits that you can elect to have when writing a new business insurance policy:
Claims Made: Having this clause written into your business insurance means that you have a limited amount of time to file a claim and have your insurance covers that claim. The timetable is typically 1-2 years
These sort of claims are often seen with contractors. Let's say you complete a job for a customer while your business is insured with a particular company. If a loss happens after the expiration of the Sunset clause, and it's determined it was your negligence as a contractor, your policy will not provide coverage.
Occurrence: With this clause, there is no expiration date for claims made against an insured during the policy term. Occurrence means the claim can be 'made' anytime in the future, and you could expect to have coverage assuming the loss itself is covered under the insurance policy.
Songer Insurance Agency Inc. is dedicated to providing business owners with the right education needed to make informed decisions regarding their business protection. We seek to add value to business owners in multiple fields by providing comprehensive, yet competitive insurance solutions and products for any small, medium, and large-scale companies.