Business insurance coverage provides a contractual safety net in the event of a tragedy. Like any contract, however, the details of your policy regulate what claims are likely to paid and which will be denied. The insurance company typically has the right to refuse to approve claims because of specific reasons, ranging from deceptive activity on the part of the claimant to duplicate coverage. It’s important to know ahead of time what won’t be covered, so you can ensure you and your business get the full benefit of your policy.

1. Fraud

Any claims with fraudulent elements or based on fraud will be denied. For example, faking evidence of losses or including misleading information on an insurance application or claim may be fraud. It is important to note that most policies have a “final adjudication” clause in the contract that brings this exclusion into effect.

This means that a court or other authoritative body must find the policyholder guilty of fraud before the claim can be denied on this basis. The court case has other monetary effects: If the claimant is found innocent, the insurance company will cover of the defense costs. If guilty, the insurance company will claw back the funds they’ve spent to defend the claimant.

2. Unjust enrichment

Unjust enrichment is when someone has benefited unreasonably, or unjustly, at the expense of another. As a general rule in contract law, legal action is supposed to put the claimant back in the same place they would have been in had the harm not occurred. If they end up in a better place, this is called unjust enrichment.

This would include an insurance claim for extensive renovations when there is only minor damage to a commercial property. For this exclusion as well, the “final adjudication” clause would prevent a claim denial based on the mere accusation of unjust enrichment and the defense costs would similarly be allocated according to whether the verdict is innocent or guilty.

3. Intentional acts

It is commonly assumed that insurance coverage will not apply if the damage or injury was caused intentionally. As an easy example, an arsonist cannot make a claim for fire losses when they have deliberately set the blaze. However, there are some exceptions to this rule. For example, someone sued for defamation, who did perform the act at issue, may be able to claim on insurance to pay for the legal fallout.

4. Covered by other policy types

Corporate entities with commercial general liability (CGL) policies might believe those policies offer blanket protection. However, a claim may be denied for such things as a professional services exclusion which, as you might guess, excludes claims related to the rendering of professional services. In this case, the policyholder may have to look to another type of insurance for claim coverage (for this example, likely a professional liability or E&O policy). For this reason, most organizations have multiple insurance policies to cover different claim scenarios.

5. Covered by other policies of the same type

In the case of healthcare, automobile, and life insurance, many households will have duplicate coverage. Companies may have 2 employment practices liability insurance policies: one purchased internally and the other provided by their payroll company.  In either case, two insurance policies cover the same kind of damage. In this case, a claim may be denied if one insurer thinks the other should pay. Typically, the insurance companies will work out how coverage should be allocated.

6. Illegal to insure

In some cases, public policy may place limits on the ability of private entities to obtain insurance on certain matters. The law in effect decides how indemnification may occur in certain circumstances in the public interest. If this applies, an insurance company may deny a claim in order to comply with the relevant legislation.

7. Timing of the claim

Valid claims typically must fall within the coverage period or the claim must occur before the “retroactive date”, although some policies may allow for “prior acts” coverage. The claim may be denied if the event at issue does not fall within the timeline of applicable insurance coverage.

8. Failure to comply with notice provisions #1: delay in reporting

Typically all insurance claims must be made in a timely manner after the event that may fall under the policy. It is the responsibility of the insured to report a claim as soon as possible, in order to give the insurance company time to properly investigate the claim. Insurers possess subrogation rights, which means after they have paid a claim, they can recover their own losses by taking legal action against a third party if possible. In order to preserve these rights for insurance companies, claims must be reported as soon as possible.

Don’t delay conveying relevant information as soon as it comes to your attention.

9. Failure to comply with notice provisions #2: deciding not to report, then it becomes a claim

Liability coverage protects insureds in the event they are sued. For example, professional service providers sued by former clients may claim on their liability insurance to pay for the defense of the lawsuit. However, that claim may be denied if the insured does not tell the insurance company as soon as a claim is made against them. That would include the moment an insured receives notification of the intent of the client to sue.

This shows the importance of early and timely reporting.

10. Misrepresentations and acts known prior to inception

A claim may be denied by the cancellation of the entire insurance contract. If the insurer has evidence of misrepresentation, such as lying on an application for insurance or otherwise keeping material information hidden, the insurer can nullify the coverage. The insurer would give notice to the insured of the intent to cancel and return all premiums paid.

Find out your coverage limits

The best way to find out what your insurance covers and what it does not is to talk to your insurance company. We can link you to the best policy for your individual and business needs. You can always reach out to a member of our team by phone 646.854.1058 or email info@foundershield.com at any time.

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