The Expert Podcast

Today, we're going to look at filing insurance claims for your business. First of all, learn how to do it to make sure that you get proper reimbursement for your damages, and also look at when you may not want to file an insurance claim, which may be counterintuitive to what you're thinking.
First of all, what is an insurance claim? Well, it's a formal notification to your insurer, usually through or on behalf of your agent or your broker, that you have incurred a loss and damage and that you believe that loss and/or damage is covered under the policy. And you usually have to do the claim reporting through a formal claim notification, provide documents, and provide evidence. We'll talk about that momentarily. It's a formal process, usually done through the agent or broker in the commercial lines policy, sometimes directly with the insurer, although the broker may get involved. The case will be assigned to an insurance adjuster, which is the person or department that investigates claims and decides what the payment is.

So how do you make sure that you start the process correctly? Well, first of all, plan on doing it as soon as possible. You don't want to wait days, weeks, or months. There may be a reporting period required; you have to do it within a certain period of time or within a reasonable amount of time, so you want to do it as quickly as possible. However, one thing that you want to do before you file the claim is read your policy and this portion of the policy, which talks about the coverage that is relevant to your loss. And here's the reason why: you may have a loss that is covered under your insurance, but if you file it in a way that indicates the damage came from another source, then you may get declined. A perfect example: we had a commercial auto policy where the vehicle was damaged because of the improper installation of an accessory on the vehicle. And the insured initially filed a claim saying that the vehicle was damaged because of this installation, and they said no, that's a defective repair; that's not covered. We'll come to find out that the mechanic, so to speak, was unlicensed, committed fraud, and basically damaged the vehicle. It was just like somebody walked up to your vehicle with a sledgehammer and smashed it; that would be covered. So, because the case was filed incorrectly to begin with, it was denied. It was a lot of work to get it re-established and redefined that it was done through the portion of the policy which was the comprehensive portion. So, to make a long story short, read your policy and read the language that is relevant to your exact loss or damage, so when you file the case, you can quantify the facts about that portion of your policy. Again, you don't want to misrepresent, mislead, lie, or commit insurance fraud because that'll get you in big trouble, and it'll be worse than not having the claim paid. But you want to make sure that you file it correctly for the coverages that you have on your policy.

The next thing you want to do to make sure that it's covered is submit documentation showing the damages, the source of the damages, and the origin of the damages. Again, your insurance adjuster will ask for certain documents, but the more that you provide initially, it'll divert that case towards different departments within the insurer. There may be a department that rubber stamps claims that appear on their face to be sufficient and they don't have to do any more adjusting, or it may go to a department that needs more information. Even though you might think it needs more information, the result will be the same; sometimes that will delay your claim or maybe even result in some or all of the damages not being covered. You want to be overwhelmed with information to begin with so that you have a higher probability of all of your claims being covered under the policy. Prepare for the fact that you're going to have to sign documents under penalty of perjury, saying that things are true and accurate. You're also going to maybe be required to give a verbal statement that's recorded. The adjuster may come out and do an interview with you for larger claims, especially. The other part of that that may be disconcerting is that, you know, you may have to sign and have things notarized. You know, it's a serious thing. You're asking that insurance company to give you money. It could be tens or hundreds of thousands or even millions of dollars, so they want to make sure it's being done properly and that it matches the coverage.
Now the question comes up very frequently: should I even put in a claim? Well, that's a judgment call. Obviously, if you deserve to be covered under the insurance policy, you have every right to file a claim. However, strategically, you might want to make a value decision on any insurance claim. For example, if you have a one thousand dollar deductible and you have fourteen hundred dollars in loss, you're only going to net four hundred dollars in benefit from that claim. Now, what if you have on your policy a claims-free discount, and that claim-free discount is two or three hundred dollars a year? Well, if you put in a claim and you lose that discount, that four hundred is going to be eaten up by more premiums over the next two years. So not that you don't deserve the claim payment, and not that you know you should throw money away, but strategically, you can make that decision. In addition, even if there's not a specified claims-free discount, when it comes to underwriting, you'll have to produce what's called loss runs, especially if you change insurers. You may remember that when you originally got your policy, you had to provide loss runs to your new insurer as part of the application. Those loss runs will show any prior claims you have. How much does it affect coverage or premiums? It's unknown, but if you're only going to net a small amount, even though it's distasteful, you may want to swallow that loss and chalk it up to maybe loss prevention in the future.

Also, you may strategically want to contact your broker or even another broker or a neutral third party to ask them, "What about this coverage? Is it going to be very clear that this coverage will be paid?" You may want to discuss that with your adjuster. You know, the adjuster technically works for the insurer, but a lot of times they can assist you with filing a proper claim. Most legitimate insurance companies do want to pay legitimate claims. They don't want to avoid payment for claims that are obviously covered under the policy. If it's a judgment call or if it's a gray area, they may want to steer towards the insurance company, but most of the time, they want to help you. You may also want to get a third-party consultation, maybe a damage estimate, or maybe an expert witness for additional damages that are not readily apparent. You know, if there's damage to your physical premises, you may want to get an engineer, an architect, or even a general contractor to look to see if there are other hidden damages, because if those hidden damages show up two, three, or five years later, you may not be able to go back and recoup those coverages. So you want to have all that done. If it's a larger claim and it's complicated, you may want to actually contact an attorney to put together a claims documentation package and help guide you through that process. That will also prevent or maybe streamline any disputes with the adjuster because the insurance company is going to look at that claim more seriously if you have an attorney involved. If the losses are more financial, like business interruption or some other loss of use, you may want to get an accountant involved to help you quantify what those financial losses are and determine what the future losses might be.

How long is this all going to take? Well, the claims process in most states has a statutory requirement. They have to be timely in their response. They can't just drag their feet and delay it. That's bad faith. And they have to acknowledge it at least within a certain period of time and then a certain statutory deadline to either accept or deny that claim. And your state will have that in its statutes. So those are some suggestions and facts for filing a claim. Remember, the end result is that you want to get coverage for your losses that are legitimate, and you also want to strategically prepare that claim to maximize the amount of coverage you're going to get and to eliminate as much of the red tape as you can for getting that check in your hand to put you back on track with your business.