You’re minding your own business one day and going about your work when you receive a surprising piece of mail: Someone is filing a lawsuit against your business. You need your insurance company to respond, but you’ve never had to file an insurance claim before. How should you proceed?

It might offer some small amount of comfort to know that you’re not alone. According to a U.S. Small Business Administration study, more than half of small business owners reported having been sued once in a calendar year. And litigation can be expensive for small businesses, costing anywhere between $3,000 to $150,000 to defend against a claim, in addition to the damages being sought.1

The truth is that most small business owners experience something like this at some point during their careers. Ultimately, accidents happen. What matters now is how you respond to it.

This post will discuss the ins and outs of insurance claims, and what you need to know about navigating them as a small business owner. If you are a Thimble customer, please follow this link to file a claim or do so in the Thimble app.

What is the purpose of an insurance claim?

An insurance claim is a formal request placed by a policyholder to their insurance company for compensation for a covered loss or policy event. In plain English, filing a claim is when you ask your insurance company to pay for an accident they promised to cover.

Another type of claim is when a customer or another third party files a claim against your business. If a customer suffers a loss (or perceived loss) at your company’s hands, they may file a claim to recover their losses.

The goal of any claim is to secure a fair financial settlement that makes the claimant whole.

How do insurance claims work?

When your insurance company receives a claim, they’ll evaluate the evidence presented within it and determine whether to pay the claim. When an insurance claim is filed, the insurance company may appoint a claims investigator to evaluate the claim’s merit. An insurance adjuster may also get involved at this stage of the process. (An adjuster is someone who will assess the financial value of the loss.)

Depending upon the type of claim, the insurance company will assign either an adjustor or a claims coordinator to manage the claims process. This person will be your primary source of information and the individual with whom you will be communicating.

If the insurance company accepts your claim, you will receive a settlement. If you disagree with the insurance company’s settlement amount or they deny your claim, you will have the opportunity to appeal the insurance company’s decision.

Likewise, if a third party, such as a customer, files a claim against your insurance company, your company may decide to accept the claim or try to settle with the client. Any claims settlements that your insurer pays to others on your behalf count against your claims history.

What are the most common types of insurance claims?

Most business insurance claims are made against the business’s general liability insurance policies and professional liability insurance policies. Businesses may also file commercial property claims for direct physical loss caused by direct physical loss to their property.

Some of your biggest risks as a small business owner are covered by general liability insurance. Also called commercial general liability insurance (CGL), this coverage protects the insured against the financial impact of third-party liability arising from accidents that cause bodily injury or property damage. A general liability insurance policy also provides the investigation and legal defense for claims made under the policy.

When your client claims financial damages as a result of your professional advice or services, professional liability insurance responds by providing investigation and defense on your behalf. Experts providing advice, such as IT consultants, engineers, accountants or financial advisors need professional liability insurance.

A business premises fire or theft of crucial equipment could cause serious financial problems for your operation. Commercial property insurance protects you by providing funds to repair or replace physical structures, their contents, and critical equipment you either own or are responsible for.

Here are a few examples of possible insurance claim scenarios:

  • You’re an interior designer, and your client has a beautiful rug they want you to design the living room around. While you’re standing on the rug, you accidentally spill coffee on it. Now your client wants you to reimburse them for the expensive cleaning required to remove the stain.
  • You own a hair salon with lots of loyal clients. One of your regulars shows up for his standing hair appointment. While he’s getting his haircut, a patron comes in with wet boots, making a puddle on the floor that you fail to clean up. Your first client slips in the puddle and twists his ankle. Now he wants you to pay for the cost of his physical therapy.
  • You’re a pet groomer. One day you open the door to your shop only to discover water has warped your floor and ruined much of your equipment, and you can’t reopen until everything’s repaired. You search for the cause only to find a pipe has burst, causing thousands of dollars in damage.
  • You’re a photographer, and you promise a model a hundred new shots for their portfolio before an important booking. After the shoot, you edit the photographs and accidentally delete half of them, realizing that they are irrecoverable. Your client sues for negligence, claiming that your mistake caused them to miss out on modeling work.
  • You own a lawn care business. At the end of every day, you lock up your equipment at your business location. Thieves break into your garage and steal your riding mower, trailer, and leaf blower, despite your diligence. Luckily, your Business Owners Policy covers these items for their replacement cost rather than their actual cash value. (This means the insurance company replaces the damaged equipment with “like kind and quality” rather than subtracting depreciation.)

How do you file an insurance claim?

What happens when you need to file a claim with your insurance company?

The claim process varies slightly from company to company. However, there are a few key steps to take immediately after an incident when filing a claim. It’s imperative to start the filing process as soon as possible. This is your best opportunity to help your insurance team manage and fairly evaluate the claim.

To file your claim, do the following:

  1. Document what happened. Create a full incident report, including how, when, who, and where.
  2. Get the contact information of everyone who was there including witnesses.
  3. Take photos of the scene, surroundings, and damages.
  4. Contact your insurance company to notify it of the situation. You may want to have your policy in hand because your insurer may need your policy number and other information found in it.

How are insurance claims paid?

Before your insurance company pays your claim, it needs to investigate it. Once it decides that your policy covers your claim, which can involve working with an adjuster or other vendors and providing additional information, your insurer will reimburse you for all or some of your loss.

The amount you receive for your insurance claim depends on your coverage limits and the circumstances of the event. In many cases, your insurer sends you a check directly, but sometimes the money goes directly to vendors on your behalf.

What happens when an insurance claim is made against you?

Typically, a customer files a claim against you or your business by sending a demand letter. If that happens, you’ll need to work with your insurance company (and possibly an attorney) to resolve the situation.

When a claim is filed against you, here are a few actions to take right away:

Contact your insurance company as soon as possible. Your insurance company will be your go-to throughout the process. They’ll help you respond to the claim and take action needed to avoid making the situation worse.
Take another look at your policy. If it’s been a while since you reviewed your policy documents, revisit them now. The documents may outline helpful steps you should take if someone files a claim against you.
Gather evidence to show you’ve done your due diligence. If a client is alleging negligence and you disagree with the claim, gather facts to back up your position. This evidence can include everything from security camera footage and email records to receipts and work logs. Present this evidence to your attorney or your insurance company.
Stay organized. Make a paper trail. Keep copies of all the documents you submit to your insurance company and any paperwork your insurance company sends to you. Each time you make a call regarding the claim, take note of the day, time, and name of the person you speak with.

What does it mean when an insurance claim is closed?

Insurance companies close claims for a variety of reasons. Perhaps the evidence wasn’t ample enough to substantiate the claim, or the insurance company decided to pay the claim.

Ultimately, closing a claim means the insurance company has made it inactive. If a customer’s claim is closed before they receive what they believe is fair compensation, they may take the claim to court to sue your company. If you have general liability insurance, your policy will provide the investigation and legal defense for claims made against you or your business.

What does it mean if an insurance claim is denied?

A closed claim is different from a claim that’s been denied. Closed claims have usually been resolved in one way or another.

Denied claims occur when the insurance company determines that your coverage doesn’t apply. When that happens, your insurance company can’t defend you or pay the claim. If your insurance company rejects a third-party claim against you, the client may take you or your company to court in an attempt to recover their losses.

Can an insurance claim affect my premium?

Filing an insurance claim doesn’t automatically increase your premium, but it can. Multiple claims, in particular, can make your business look risky to an insurance company, and that can cause your rates to go up. This may happen even if you later decide not to pursue the claim.

That doesn’t mean you shouldn’t get insurance or that you shouldn’t file a claim when the situation calls for it. But you do want to take steps to lower your risk of insurance claims to protect your business.

Insurance is your first line of protection

It’s impossible to guarantee that nobody will ever file an insurance claim against your business, even if the claim is frivolous. Fortunately, having ample business insurance protection is the best way to help protect your company from unexpected expenses and poor reviews while keeping your customer relations positive.

If you don’t already have small business insurance, getting a quote is quick and easy. You can buy a policy online, in the app, or over the phone in just minutes. Protecting your business has never been so easy!


  1. Small Business Administration. Impact of Litigation on Small Business.