When businesses invest in insurance coverage, they expect protection when something goes wrong. But unfortunately, many policyholders receive an unpleasant surprise when their insurance claim is denied. Motivated to protect their bottom lines, insurance companies routinely look for loopholes to deny all or part of a claim, thus keeping more money in their own pockets.
Understanding why claims are denied can help companies avoid costly mistakes and better protect their interests. Here are five top reasons business insurance claims are denied.
The Loss Is Not Covered Under the Policy
The most common reason for denial is that the loss is not covered under the policy. Business insurance policies are contracts that define specific covered risks, or “perils,” and expressly exclude others. For instance, commercial property policies often cover physical losses from fire, theft, windstorms/hail and certain types of water damage. But they generally exclude damage from floods, earthquakes or wear and tear.
While in some situations the loss clearly falls outside the policy’s coverage, in others it’s not so straightforward. For instance, general commercial liability (GCL) policies typically exclude losses stemming from the provision of professional services, but the definition of professional services varies from policy to policy, and the policy language may be ambiguous. There may also be a dispute over what caused the loss—such as whether property damage resulted from a storm or wear and tear.
Before submitting a claim, it is important to understand the policy’s exclusions and how they are defined under the policy. Where applicable, include compelling evidence demonstrating that the loss resulted from a covered peril.
Policy Lapses Due to Nonpayment
Insurance coverage must be active at the time of the loss. If a premium payment is missed and the policy lapses, the insurer will deny the claim, even if the loss occurs only days after cancellation. In some cases, businesses mistakenly believe they have coverage because they intended to renew, but without payment or confirmation of reinstatement, coverage may not exist. Maintaining accurate records and confirming renewals is essential to protecting your interests.
Late Notice of Claim
Most business policies require an insured to give proper notice of a claim in a “prompt” or “timely” manner. Delays in reporting can give insurers grounds to deny coverage, especially if they argue that the delay prejudiced their ability to investigate the circumstances surrounding the claim. The language in notice provisions is often vague, leaving what constitutes prompt notice open to interpretation. To be on the safe side, contact your insurer as soon as possible after you learn of a claim or loss, or an occurrence that may lead to a claim.
Incomplete or Inaccurate Application Information
Insurance policies are issued based on the information provided during the application process. If an insurer later determines that key facts were omitted or misstated, such as the building conditions or the nature of the business’s operations, it may deny the claim or even rescind the policy.
Many errors and omissions are unintentional, but they can nonetheless leave your business vulnerable. Ensure your insurance applications are accurate and updated as operations change.
Failure to Comply with Obligations Under the Policy
Insurance policies contain post-loss obligations that businesses must follow. By failing to fulfill their obligations in a timely manner, insureds risk denial of their claims. Obligations vary based on the type of policy and claim. For instance, commercial property policies generally require insureds to mitigate further damage following a loss. For example, if a pipe bursts, the business must take reasonable steps to stop the water and protect the property from further damage. If inaction results in additional damage, the insurer may deny payment for the avoidable portion of the loss.
Other obligations may include cooperating with the insurer’s investigation, documenting losses or submitting a sworn proof of loss. Failure to strictly comply with these obligations in a timely manner can give insurers an excuse to deny or limit payments.
If your business insurance company has denied or is challenging your claim, contact Schwartz Conroy & Hack, P.C. We have the expertise, experience and tenacity to make insurance companies keep their promises to you and your business.
