Now, years later, that embarrasses me.
Denying claims was not my job and not what I was expected to do. I was
expected to read the file and figure out whether the claim was legitimate and whether the company had reasonable grounds to deny the claim.
Here is what I know now: By the time a business insurance claim gets to the point that it is being litigated over, you are in trouble. Either the business bought the wrong insurance and filed a claim that wasn’t covered, or it filed a frivolous claim, or it didn’t have enough coverage, or something else went wrong.
Here is what else I know: Insurance companies do NOT want to deny claims. They are in the business of covering risk and accidents and expect to pay legitimate claims; that is what they do and that is what keeps them in business.
So, what you need is to have a “legitimate claim.” Let’s look at how that works:
Let’s say your business was injured or damaged in some way. The first thing you need of course is a policy. But not just any policy, you will need a policy that covers – and doesn’t exclude – the type of damage you have. (More on that exclusion word in a sec.)
Small business can get all sorts of different types of coverage, for example:
- Liability: Comprehensive General Liability (CGL) is a type of catch-all policy. It is “a standard insurance policy issued to business organizations to protect them against liability claims for bodily injury and property damage arising out of premises, operations, products, and operations.”
- Commercial auto
- E&O: Errors and Omissions insurance is for professionals and service businesses for claims arising out of allegations of sub-standard work, i.e., negligence and professional malpractice
- Property: Protects business property and assets
- Business interruption insurance: If a disaster or catastrophic event does occur, your operations and income may be interrupted. This covers that.
The first thing is to buy the insurance that provides the widest net for the types of foreseeable risks that your business may encounter.
As for exclusions, almost every policy will exclude certain risks/coverage. It is akin to a health insurance policy that excludes certain types of drugs, surgeries, etc. Make sure the exclusions in your business policy do not prevent the type of claim you may have.
Next, consider the amount of coverage. The amount and types of things covered are often constrained by what you can afford. Of course, you can’t insure against everything but the risk is not buying enough insurance. If you buy some cheapo policy that limits coverage of a claim to $10,000 and your damage is $100,000, you are out of luck.
Best practice: Buy as much insurance as you can afford.
Finally, consider the deductible: One common way to reduce costs is to have a high deductible. Smart, until you need to file a claim.
This is how it is supposed to work: You buy some insurance. Something happens that damages your business. You file a legitimate, covered claim. Your insurance reviews it and pays you the amount of your damage, less the deductible.
As you may gather, a lot can go wrong in that process. It could be that your deductible is too high, or your coverage is too low, or your type of claim is excluded, or that you may have waited too long (the statute of limitations has run).
There are two additional things you can do to protect yourself:
- At the start, before you buy, meet with an insurance broker. As opposed to an agent, who only represents one company, a broker can steer you to the right company and the right type of coverage.
- If your claim is denied, hire a lawyer. Period.
And hopefully, your attorney will understand insurance better than I did when I began those many years ago.
About Steve Strauss
Steven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest, The Small Business Bible, now out in a completely updated third edition. You can also listen to his weekly podcast, Small Business Success.© Steven D. Strauss.
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