This guide does not form any part of your insurance policy and you should always adhere to the terms and conditions of your Policy Document(s). The purpose of this guide is to provide business owners an awareness of points which should be considered when you first become aware of circumstances which might give rise to an insurance claim.
What is a business insurance claim?
A business insurance claim is a formal request for compensation to your insurer following a financial loss or damage. For example, this could be a result of an employee injury, property damage, or professional negligence. After you notify a claim to your insurer, they will investigate, and upon successful review make payment to yourself or a third-party seeking compensation.
Your duties in the event of an insurance claim:
DO NOT admit liability, attempt to settle, or make or promise any payment
DO NOT take any action which might prejudice your insurer’s position or their ability to investigate further
DO obtain a crime reference number if loss or damage is caused by malicious persons (e.g. thieves or vandals)
DO prevent further loss or damage and recover lost property
How to make an insurance claim?
A notification of the circumstances of a potential business insurance claim will need to be made to your insurer per the conditions within your policy documentation. We would recommend that you first discuss the events that have taken place with your broker. As an agent that works on your behalf, we can offer guidance on how to notify a claim, what information the insurer may require, and potential claim eligibility.
When to make a claim?
Most liability policies will require you to make a notification of the circumstances that may give rise to a commercial insurance claim to your insurer as soon as reasonably practicable. It is important to note that material delays in notifying circumstances that may give rise to a claim, may prejudice insurance cover and entitle the insurer to repudiate a claim.
Understanding the claims process
It’s important to review your policy and understand what is covered and what exclusions may apply. This can help you determine the eligibility of a claim. We’d recommend discussing the circumstances with your broker.
1) Gather information
- Policy number
- Date of the incident
- Detailed description of the events that took place
- Details of any third parties
- Estimated amount being claimed
- HSE RIDDOR Report
- Witness statements
- Risk assessments
- Photographic evidence or CCTV footage
- Proof of damage (eg. receipts or loss of earnings)
- Crime reference number
2) Notification
The notification of the claim will need to follow the instructions within your policy documents, typically this will be found under the section called ‘Claims Notification’. It is worth making sure you have all the relevant information to hand. Notice to the insurance company maybe via an online platform, telephone, email, or post, depending upon the insurer and type of cover provided.
3) Cooperation
You will be required to provide any supporting information the claims handler or loss adjuster requests to validate and process your claim. Most policies will include clauses that require the policyholder to actively participate in the claims process. Failure to provide sufficient information or acting in bad faith can impact your cover.
4) Negotiation
If you're not satisfied with the insurer’s offer, you can seek to negotiate. If you can present a clear argument as to why the settlement amount should be different, the insurer may reconsider their position. Again, we would recommend discussing with your broker to achieve the best outcome.
5) Settlement
Once the settlement is agreed upon, your insurer will issue a payment to yourselves or your broker. Only if there are specific clauses agreed upon within the policy will an insurer make payment to a third-party (i.e. first loss payee). Generally, payments are not considered taxable income unless they exceed the original asset value or cover a loss that would otherwise be deductible as a business expense.
Reservation of rights
It’s worth noting that most insurers will still issue a reservation of rights letter. This should not be misconstrued that the insurer has denied the claim, but they are simply highlighting their rights are reserved and they may later deny a claim. Please be aware their actions or statements during the investigation should not be interpreted that you have indemnity confirmed under the policy.
Claim denial
A ‘denial of liability’ letter may be sent to the solicitors acting on behalf of the claimant, this does not mean your insurer has denied your claim under your policy. However, it does mean that your insurer does not accept the alleged liability of the claimant and instead of settling the claim, they will defend the action through the courts.
If, however you are not satisfied with the response your insurer has provided you have the right to complain. If after 8 weeks they have failed to resolve your complaint, you have the ability to complain to the Financial Ombudsman Service. If you are still not satisfied with the Financial Ombudsman Service verdict, you still have the right to pursue legal action through the courts.
If you wish to pursue further, Fenchurch Law are a firm which specifically deal with insurance litigation and dispute resolution. Please note the above does not constitute a recommendation and you should undertake your own due dilligence before seeking legal advice.
Types of claims in insurance
There many different types of insurance policies availbale to businesses, therfore we've only highlighted the main protections below.
Liability insurance claims
Business cover can provide for loss or damage to a third-party for which they are seeking compensation. For example, this could include a claim for financial loss, bodily injury, property damage, including costs and expenses. There are several types of liability policies, such as public liability insurance which can protect your business and pay for defence costs, settlements agreed by the insurer, and damages awarded by a court.
Property insurance claims
Cover can protect businesses against damage or loss to property which you own, or potentially which you are legally responsible. The damage or loss may be covered by a policy on a defined perils basis, which identifies all the risks that will trigger a claim. Alternatively, a policy will be provided on an ‘all-risks’ basis such as contractors all risks which covers all perils. All policies will seek to indemnify the policyholder for their loss or damage, this could mean ‘new for old’ replacement or the cost to reinstate the insured property or building.
Cyber insurance claims
Business cover can provide for first-party expenses incurred as a result of a cyber-attack or data breach, third-party liability compensation claims, business interruption, and regulatory fines or penalties, amongst other extensions. Cyber protection will typically provide incident response service, which provides access to a specialist to assist with immediately responding to an incident. How you deal with a cyber event in the first 24 hours, can be the most import factor which determines the cost of a claim.
FAQs
Which policy year does your claim attach to?
If your cover is provided on a ‘claims made basis’, the claim will attach to the policy year the claim was first notified to the insurer. Whereas, if your cover is provided on an ‘occurrence basis’, the claim will attach to the policy year the event/s occurred. Employers’ liability insurance will always be provided on an occurrence basis, which most other liability policies such as professional indemnity insurance will be provided by a ‘claims made’ basis.
What about related claims to a single event?
Your policy documentation will detail how related claims will be dealt with. Typically, if the act, error, omission causes multiple claims for compensation, they will be treated as one claim under the policy. Which will determine how many deductibles or coverage limits will be applied.
How will your claim be handled?
Most insurers will manage the claims process themselves, however some Lloyds of London Syndicates and Managing General Agents (MGA) will appoint a Third-Party Administrator (TPA) which have the authority to settle claims on the underwriter’s behalf.
Should we make a claim?
It's prudent to make insurers aware of the circumstances irrespective of the merits of the potential claim, your views of the allegations made, nor the size of the demands for compensation. If a claim for compensation suddenly becomes more serious, however you didn’t notify your insurer at the time, you could find yourself having to debate the financial impact of the delay with your insurer.
How long does a claim take to process?
The timeline can vary depending on several factors, including the complexity, the responsiveness of the parties involved, and the type of claim made. A straightforward property claim can take less than two weeks to settle. However, liability claims will typically take months or years in protracted cases whereby solicitors will argue the merits of the case in the courts.
Simon Taylor is a respected senior industry professional and a Chartered Insurance Broker with over 20 years’ of experience in the commercial insurance sector as an underwriter, broker and director.