Your heart drops. A customer says your business made a mistake, and now they’re “filing a claim.”
First things first, take a deep breath. This won’t automatically lead to a lawsuit or the end of dreams. It just means your small business insurance is about to do what it was built for: step in, figure out what happened, pay for legal help, and (if needed) cover what’s owed.
How Does Someone File a Claim Against You?
When someone files a business insurance claim against you, they’re telling your insurer that your business may have caused harm.
Common examples of this include:
- A customer slips and falls where you’re doing business
- A client says your advice cost them money
- A venue claims your equipment damaged their property
It’s different from filing a claim on your own because you’re not the one asking for the payout; someone else is.
When You File a Claim
✔️ You report the loss, injury, or damage to your insurance company (both your loss and any loss another party may have suffered)
✔️ You provide proof of a loss, injury, or damage
✔️ The insurance carrier settles the claim and pays the harmed party for a loss, injury, or damage*
*You, as the insured, are paid for claims of inland marine or cyber liability; other liability claims are paid to the affected parties.
When Someone Else Files Against You
✔️ They report their loss and name you as responsible
✔️ They provide any proof or information they have regarding the claim
✔️ The claims adjuster contacts you for information and proof you have regarding the claim
✔️ The person who files is reimbursed for a loss, injury, or damage
The good news is, if a claim falls under your coverage, your insurance takes over the heavy lifting. They determine what is covered, who is paid, and how much.
What Happens When a Claim Is Made Against Your Business?
From first notice to final resolution, a lot can happen in the claims process. The total claims process can take anywhere from a few days to a few months, depending on the complexity of the case. Knowing what to expect with this step-by-step breakdown can help ease some of the anxiety around the unknown.
First 24 Hours: You’re Notified of a Claim
You may receive an email, letter, or phone call from Insurance Canopy or the carrier letting you know someone has filed a claim.
Next Steps
- Gather anything related to the incident and prepare to send this to a claims adjuster
- If the notification came from an adjuster, forward a copy of the notice to Insurance Canopy to alert our team of any incoming claims. This is also called “tendering” a claim.
- Don’t admit fault, apologize, or promise payment to the filing party
Quick Check
Insurance Canopy sells and services your policy, but your insurance carrier is the one that actually manages claims. They’ll investigate, assign adjusters, and handle payouts. If someone else files a claim, you may hear directly from the carrier and not from us.
We know it can feel scary and suspicious to hear from another company. Please contact our team so that an insurance agent can help validate a claim notification!
Following 24–48 Hours: Your adjuster Confirms Coverage
Once the carrier is aware of the claim, you will begin working with a claims adjuster who is investigating the incident. This person is your main point of contact throughout the process.
An adjuster will likely reach out to gather information about your policy so they can confirm your coverage details.
Next Steps
- The adjuster will confirm key details with you about your policy, like:
- Your policy number
- The type of coverage you have
- Your coverage limits
- Whether your policy was active when the incident took place
Following Weeks: The Claim Is Investigated
Your adjuster will begin gathering details from anyone involved in the claims incident. The goal here isn’t to create a case against you to assign blame, but to objectively build a clear understanding of what happened so the insurance carrier can determine if someone needs a payout.
Next Steps
- The adjuster may reach out to gather key details from you, including:
- A police or incident report
- Your side of the story
- Photos or videos of what happened
- Receipts, contracts, or invoices related to the situation
- Names and statements from anyone else involved
- Your role in a claims investigation is also known as your “duty to cooperate,” which means you must:
- Share facts, documents, and photos that your adjuster requests
- Attend interviews or provide statements if asked
- Avoid doing anything that could hurt the defense (like admitting fault or paying out of pocket)
Pro Tip: Create a folder to store all claims-related documents. This may include physical copies and digital copies of files. It keeps everything organized and accessible for future reference.
Following Months: Your Defense Team Steps In (If Required)
If there’s even a chance of legal action, your insurer hires and pays a lawyer (aka a panel counsel) to represent you.
Next Steps
- Your lawyer and adjuster handle communication with the other party, so you can focus on running your business
- You may have received a Reservation of Rights letter, which means there may be something your insurance is unable to cover as they continue their investigation, but that doesn’t mean your claim is denied, just that:
- Your insurer is still determining whether coverage applies, or
- Your insurer agrees to defend you in court, but may not be obligated to pay for any judgments if the claim is later denied
- Contact your claims adjuster for clarification on any communications you receive regarding the claim
TL;DR: Your policy covers defense costs, but it may not always cover the amount a court or judge finds you legally obligated to pay.
If your insurance denies a claim, they would pay for your legal fees but not the final judgment costs. If your claim is covered, they will pay for defense costs and covered judgments up to your per occurrence limit!
Following Months: A Resolution Is Reached
After reviewing everything, your insurer will decide if the claim is covered, partially covered, or denied. In any situation, they will explain why, if you owe any deductibles, go over the costs, and explain how a payout impacts your limits.
Next Steps
- You’ll receive a final notice about the outcome of the claim
- You may need to pay deductibles first to receive coverage
- If a claim is covered, payment is sent out
- Once resolved, all parties will sign a settlement and release to close the claim
What To Do (and Not Do) in the First 24 Hours
How you react to a claim in the first 24 hours can save you stress later. First impressions count, especially when dealing with a disgruntled client or unsatisfied partner!
| ✅ Do | ❌ Don’t |
|---|---|
|
Take notes about what happened |
Post about the incident online |
|
Save all emails, letters, and photos |
Try to settle or pay out-of-pocket |
|
Contact your insurer right away, even if you suspect a claim could be filed |
Avoid filing a claim or hiding the incident from your insurer |
|
Cooperate with your claims adjuster |
Admit to fault or wrongdoing (even casually) |
Pro Tip: Maintain a calm, professional attitude to help diffuse a tense situation and make it easier for an adjuster to complete a thorough and fair investigation.
The Money Side: Who Pays What?
Your insurance policy exists to protect your business cash flow, but there are still a few financial terms to know:
| Term | What It Means | Who Pays It |
|---|---|---|
|
Deductible / Retention |
The small amount you pay before coverage applies |
You |
|
Defense Costs |
A legal team provided by your insurance |
Insurance company |
|
Indemnity |
Money your insurer pays to the affected |
Insurance company |
|
Claims Payout |
Money your insurer determines is paid to |
Insurance company |
|
Situations your policy doesn’t cover |
You |
Note: Always verify the coverages you have by speaking with a member of our team or by clarifying with your claims adjuster.
Duty to Defend vs Duty to Indemnify
The “duty to defend” and the “duty to indemnify” are two aspects of the claims process that basically mean your insurance will defend you first, and if needed, pay out on your behalf later.
These are two separate but related insurance carrier responsibilities you may hear or encounter during the claims process:
| What It Means | When It Happens | |
|---|---|---|
|
Duty to Defend |
Your insurer pays for and provides a lawyer to defend you against covered claims, even if the allegations aren’t true |
Starts immediately once a claim begins |
|
Duty to Indemnify |
Your insurer pays money to the other party (a settlement or judgment) if you’re found responsible and your policy covers it |
Happens only after an investigation or a court ruling |
What If You Think the Claim Is Unfair or False?
Unfair or false claims do happen, and our carriers are equipped to handle these types of situations. If you believe the claim is exaggerated or untrue:
- Share your side of the story with your adjuster
- Provide sufficient evidence to support your claim (like emails, receipts, or photos)
- Let your insurance company communicate on your behalf
You never want to go after the person filing the claim directly! Instead, polite persistence and good documentation go a long way when communicating with your adjuster.
How to Prevent Future Claims
A claim is a chance to review and strengthen your business against risks:
- Review insurance annually and update coverage as your business grows
- Stay up-to-date with additional licensing, permits, certifications, and training (for both you and any staff)
- Train your team on safety protocols and incident reporting
- Keep a record of contracts when doing client-facing work
- Require proof of insurance from every vendor, subcontractor, or partner you work with
Pro Tip: Look at this as an opportunity for growth! Every incident can teach you something about protecting your business. Learn, adjust, and keep going.
You’re Covered, Not Cornered
With the right coverage in place, a claim isn’t the end of your dreams. It’s just a roadblock you can be prepared for! At Insurance Canopy, it’s our job to protect you, defend your business, and shield your reputation, so that you can move forward with peace of mind. It’s your job to stay calm, communicate, and keep your focus on your customers.
One bad day doesn’t have to define your business. Apply for a free quote with Insurance Canopy today!
FAQs About Business Insurance Claims
Do I Have to Tell My Insurer If I Think a Claim Might Come?
Yes, you should inform your insurer if you believe a claim may arise. It’s always a good idea to report potential claims so an investigation can begin and an adjuster can review your coverage promptly.
Will My Insurer Provide a Lawyer, and Who Chooses Them?
Yes, your insurer will provide a lawyer, and the insurer will choose who it is. Part of your liability insurance includes a right to defend, meaning the insurance company is obligated to hire a defense team (or “panel counsel”) for you.
While your insurance covers the cost of a lawyer, the final costs determined by the court may not be covered if your claim is denied. This means you have to pay for any settlements, payouts, or judgments the court orders, but you don’t have to pay for the lawyers. If your claim is covered, then you may also receive coverage for any court-ordered costs as well.
What Out-Of-Pocket Costs Should I Expect?
Out-of-pocket costs you can expect to pay include:
- Deductibles
- Uncovered events or items
- Expenses that exceed your coverage limits
How Long Do Claims Usually Take?
Claims usually take anywhere from a few weeks to several months to resolve, depending on the type of claim.
Can I Dispute or Appeal a Claim Decision?
Yes, you can dispute or appeal a claim decision directly with the insurance carrier. Once a claims decision is reached, you will receive a letter and an explanation of the decision. If you feel the conclusion about a claim was mishandled, you can contact outside legal counsel and work with the claims adjuster to understand your next steps for a dispute or appeal.
Will My Premiums Increase After a Claim?
It’s unlikely your premiums will increase after a claim with Insurance Canopy, but some carriers and policies may raise premiums. Even if your premiums don’t increase, the carrier may choose not to renew your policy after your coverage expires. This would mean you’d need to find a policy elsewhere.
If a non-renewal happens, you will receive a Letter of Non-Renewal either by email or mail at least 30 days in advance of your policy expiration date. This should give you time to start shopping around for a new policy to avoid any gaps in coverage.
