You’re minding your own business one day and going about your work when you receive a surprising piece of mail: Someone is filing an insurance claim against your business. You’ve never been in this situation before. How should you respond?

It might offer some small amount of comfort to know that you’re not alone. According to a study by the U.S. Small Business Administration, more than half of small business owners surveyed report being sued in the past year. And litigation can be expensive for small businesses, costing anywhere between $3,000 to $150,000, according to the same study.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.

In this post, we’ll discuss the ins and outs of insurance claims, and what you need to know about navigating them as a small business owner. Let’s dive in.

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 the hands of your company, they may file a claim to recover their losses.

The goal of any claim is to secure a financial settlement that’s equal to the value of the filing party’s loss.

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 merit of the claim. 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.

In many cases, the insurance company will appoint someone, such as a coordinator, who will manage the claims process. This person will be your primary source of information and the individual with whom you will be communicating.

If your claim is accepted by the insurance company, you will receive a settlement. If you disagree with the insurance company’s settlement amount or if your claim is denied, you will have the opportunity to appeal the insurance company’s decision.

Likewise, if a third party, such as a customer, is filing a claim against your insurance company, your company may decide to accept the claim or try to reach a settlement with the client.

What are the most common types of insurance claims?

Two of the most common types of business insurance claims are those made against general liability insurance policies and professional liability insurance policies.

As a small business owner, you want to make sure you have general liability insurance. Also called commercial general liability insurance (CGL), this coverage protects the insured against the financial impact of third-party liability arising out of accidents causing (or resulting in) injury and property damage. A general liability policy also provides the investigation and legal defense for claims made under the policy.

It is also a very good idea to consider purchasing professional liability insurance. Professional liability insurance provides investigation and defense of claims over mistakes made by your business operations that may cause a financial loss for your customers. It is generally for experts who provide professional advice and services, such as IT consultants, engineers, tutors, and accountants.

That said, 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, your client offers you a cup of coffee. You take it and at the same moment the client’s cat bolts into the room, startling you. You spill the coffee onto the rug. 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, it begins to rain outside and a patron comes in with wet boots, making a puddle on the floor. On the way out the door, 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 wedding photographer. The bride and groom have asked for hundreds of shots of their wedding. To reach your goal, you run around for hours taking every shot imaginable. Later, you edit the photographs and accidentally delete half of them, and the deleted shots are irrecoverable. Your client sues for negligence, saying that you breached your contract.
  • You’re a makeup artist and you’re styling the lead actress for the first set day on the schedule. During the session, she has an allergic reaction. She claims it was your products that caused the hives. Now, the production company wants you to pay for the costs of that day of shooting because they had to send everyone home.

While there are many ways for general liability and professional liability claims to manifest, most insurance claims made against a small business fall into general liability or professional liability.

What happens when an insurance claim is made against you?

When a customer files a claim against you or your business, you’ll need to work with your insurance company (and possibly an attorney) to resolve the situation. Depending on the situation, the claim may be made in small claims court or through an attorney the customer has hired to help facilitate the claims process.

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. Gather evidence to show you’ve done your due diligence. If a client is alleging negligence and you disagree with the claim, gather evidence 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.

How do you file an insurance claim?

Up until this point, we’ve been talking about what to do if someone files a claim against you. What happens if 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 you are filing a claim. It’s very important 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, and where.
  2. Get the contact information of everyone who was there.
  3. Take photos of the scene.
  4. Contact your insurance company to file a claim report.

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, on the other hand, happen when the insurance company rejects responsibility for the claim and denies coverage. 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.

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 costly payouts.

If you don’t already have small business insurance, getting a quote is quick and easy. Just click get a quote, drop in a few basic details, and you’ll have your quote in just 60 seconds. Protecting your business has never been so easy!


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

Written on March 16, 2020 | Modified on: August 27, 2021

Our editorial content is intended for informational purposes only and is not written by a licensed insurance agent. Terms and conditions for rate and coverage may vary by class of business and state.