When you take out a business insurance policy and pay your premiums, you expect the insurer to keep its promises and provide coverage when you have a loss. But unfortunately, insurance companies are focused on protecting their bottom line and routinely seek to exploit loopholes to deny claims. Below are five common reasons for claim denials and steps you can take to protect your business.
Policy Exclusions
All insurance policies have exclusions, and if your claim falls squarely within an exclusion, it will be denied. But in some cases, it is unclear whether the claim falls under the definition of the exclusion. Policy language may be ambiguous, leading to a dispute over whether coverage applies. For instance, a commercial general liability (CGL) policy covers businesses against third-party claims of bodily injury or property damage arising out of an occurrence or accident. However, CGL policies generally exclude injury or property damage resulting from the provision of professional services. Whether the professional services exclusion applies to a particular situation is often open to debate, with some courts interpreting the definition more narrowly than others.
In some cases, it may not be clear what caused the loss, or perhaps the loss resulted from multiple causes, some covered and some not. For instance, commercial property insurance policies often exclude coverage for damage caused by or that results from mold. However, when a covered peril – such as a burst water pipe – leads to mold growth and both the mold and the covered peril contribute to the resulting property damage, a court may rule that the water leak was the dominant cause of the damage and that the exclusion therefore does not apply.
Before submitting your claim, read your policy carefully to understand what exclusions apply and how these exclusions are defined. Provide as much evidence as possible that the damage resulted from an event or peril that is covered under your policy.
Late Notice of Claim
After a loss occurs, insurance companies require that policyholders provide timely notice that they will be submitting a claim. In many cases, insurers also require timely notice of occurrences that could lead to a claim, such as if a shelf falls on a customer in your store and the customer sustains an injury.
Timely notice allows insurers to conduct investigations while witnesses are still available and memories are still fresh. The notice requirement also allows insurers to adequately allocate their reserves to cover future liability, and to ensure that dangerous conditions are corrected before they lead to additional liability. In addition to requiring timely notice, insurers have deadlines for filing claims and supporting materials.
To avoid having a claim denied for failure to meet notice or filing deadlines, notify your insurer of a claim or potential claim as soon as possible, and meet all subsequent filing deadlines specified in your policy. Many businesses have multiple policies for different types of coverage, and coverage for certain losses may overlap. Review the coverage offered by each of your policies, and be sure to provide timely notice to all insurers that may potentially provide coverage.
Missing Information
Under the terms of your policy, you are responsible for cooperating fully with the insurer and providing certain information and evidence to support your claim. Insurers often make policyholders jump through hoops, requiring them to submit onerous amounts of documentation. If you fail to fill in key details on an insurance form or submit insufficient evidence to support your claim, your insurance company will deny the claim, and you will have to resubmit it. This will serve to delay the claims process, allowing the insurer to keep your money in its pocket for longer.
When submitting your claim, carefully complete all parts of the insurance forms and provide as much supporting evidence as possible to reduce the risk of denial or delay.
Misrepresentation or Fraud Allegations
If your insurance claim contains inconsistencies or wrong information, the insurance company will likely flag it. Whether the misrepresentation is intentional or unintentional, the insurer will typically deny the claim. This will delay the claims process, as you will need to resubmit the claim with the correct information. Further, depending on the circumstances, the insurer may choose to investigate the claim as fraudulent. Potential consequences for insurance fraud include not only claim denial, but also policy cancellation, fines, lawsuits and criminal charges.
Always be truthful and thorough when filling out insurance claims. Read the questions carefully, doublecheck your facts and figures, and proofread your form carefully before submitting it to cut down on the risk of errors that could lead to denial or other potential consequences.
Pre-Existing Conditions or Risks
If your business had a pre-existing condition, such as prior property damage or known risks, and you file a claim related to it, your insurance company may deny the claim based on the pre-existing condition. The policy may have language excluding losses from pre-existing damage, damage that happened gradually over time, or risks known before the policy started. If you didn’t disclose a known issue on your insurance application, the insurer may claim coverage does not apply for the claim, or even that the policy is void.
Read the parts of your policy pertaining to pre-existing conditions or risks carefully. If your claim is denied for a pre-existing condition or risk, submit an appeal letter with as much supporting evidence as possible to show that the damage was not directly related to the pre-existing issue or risk. If the policy language is ambiguous, this may benefit you, as courts often interpret unclear language in favor of the policyholder.
If your business insurance company has denied or is challenging your claim, contact Schwartz, Conroy and Hack, PC for assistance. We have the expertise and tenacity to make insurance companies keep the promises they make to you and your business.
