Don’t Spiral: When Not to File an Insurance Claim

Knowing when or when not to file an insurance claim is easier in some cases than others.

Get into a fender bender during heavy traffic? You know to call your auto insurance company. Have a grease fire break out while cooking brunch for the family, damaging your stove, range hood, upper cabinets, and walls? You call your home insurance company. Take an emergency trip to the hospital because your five-year-old had a bad landing playing Spiderman off the top bunk (after you told her a hundred times not to)? Yep, a health insurance claim is in the works.

Business insurance claims are a little trickier. Sometimes you don’t know what’s “worth” calling your insurance for. Other times, you may not realize you have a claim until you’re completely underwater. In your eyes, you’re talking down an upset customer. In their eyes, they’re seeing dollar signs.

How can you tell when it’s time to involve your insurance for a possible wellness business claim? When should you call your insurance agent? And what steps should you take?

We answer your business insurance claim questions below.

Common Small Business Insurance Claim Mistakes

The first days and months of a potential claim are some of the most important. Having all relevant details ASAP can help your insurance provider set a game plan and respond promptly. Alternatively, delayed notice can set back the claims handling process. By understanding where things often go wrong, you can avoid these pitfalls and set yourself up for success.

Before we explore when not to file an insurance claim, here are some pitfalls to steer clear of.

• Not Understanding Your Policy’s Terms and Conditions

The first step to learning how to protect your business from liabilities and when you should file an insurance claim is to understand your policy. But few people do.

Insurance policies outline terms and conditions that you, the insured, are expected to meet. They tell you exactly what a claim is, what potential acts or errors are not covered, and what to do if you suspect a claim could happen. 

Our policy at WellnessPro defines a claim as “written notice received by any Insured of an intention to hold the Insured responsible for compensation for Damages.” It applies “even if any of the allegations of the Claim are groundless, false or fraudulent.” 

Also, note the key word “intention.” This indicates a claim isn’t just a literal demand, but also the “intent” to demand compensation. In other words, our policy outlines that insureds should even report something that isn’t a claim yet, but has the intent or likelihood of becoming one soon.

If you don’t understand your policy’s definitions, terms, and conditions, you risk not complying or knowing what a claim is or what to expect if you experience one. Also, your insurance company could have grounds for denying coverage.

For example, let’s say a barber client accuses you of something and you’re confident you aren’t at fault. They’re just trying to get a pricey barbershop lawsuit out of you. So you assume that doesn’t count as a claim, and you don’t tell your insurance company. Later, you find out your insurance expects you to report any accident, groundless or otherwise. If you’d known sooner, you would’ve reported the incident promptly and protected your coverage.

• Delaying Notification to Insurers

One common condition is your timeline for notifying your insurance company.

We can’t speak for others. But at WellnessPro, we ask insureds to give notice of a claim, occurrence, or circumstance that might lead to a claim. We ask for notice in writing “as soon as reasonably practicable.” If you don’t renew your policy, you must provide notice of claims no later than 30 days from the expiration date of your certificate period. 

So if you’re in the middle of the busiest business day of your career, we don’t expect you to drop everything to call us the very moment your client threatens to sue. You can take a day or two to collect relevant paperwork and find a private moment. 

But don’t drag your feet. Waiting weeks or months (or failing to report altogether) are common mistakes that can cause you to lose coverage. So report as soon as you reasonably can. 

• Inaccurate Recordkeeping

Many insurance policies also require you to include relevant documentation when reporting incidents. For example, we ask our insureds to forward every demand, notice, and summons they receive. This could include emails, texts, or even social media posts of your correspondence.

Unfortunately, when you’re in the weeds of deciding when or when not to file an insurance claim, it can be easy for this kind of documentation to slip through the cracks or get lost. As a result, you could lose evidence or delay your defense team while looking for them.

When do you need to involve your business insurance? 

5 Examples

Insurance providers may have different expectations for the incidents they expect insureds to report. We always recommend reviewing your insurance policy’s definition of a “claim” and their terms and conditions. Additionally, it never hurts to call them and ask questions. 

In general, however, there are a few common red flags you should learn to recognize. Here are five examples.

1. A serious error or omission, accident, or negligent act happens from your business.

Our policy at WellnessPro states that if you become aware of a negligent act, error or omission, or an accident that could become a claim, you must provide written notice.

We aren’t talking about little errors like accidentally calling your regular massage client the wrong name. We’re referring to errors, omissions, or workplace accidents that cause serious injuries or conflicts. For example, this could include accidentally hurting a massage client or your client accusing you of frying and ruining her hair on her wedding day.

2. A customer demands payment.

Still can’t tell if an incident is a serious error, accident, or act of negligence?

Here’s another sign: They demand money.

If an irate customer pressures you to give them money, like demanding a refund for a hospital bill or their whole wedding day hair and makeup, give your insurance company a call. Seeking payment from you could turn into a claim. See an excerpt from our policy as an example below.

3. They mention lawyers, threaten to sue, or bring up their insurance.

This one can be tricky. How do you know if an upset customer actually has their lawyer on speed dial or if they’re just trying to manipulate you?

It doesn’t matter. They could make a direct threat like “I’m suing for every penny you have!,” talk big with “Just wait until my lawyer hears about this!,” or even ask “Hey, what kind of insurance do you have?” If you’re in a heated conflict and a customer brings up insurance or threatens you with a lawsuit, your insurance provider will likely want to know.

4. Covered property is damaged or stolen.

If your insurance company covers stolen or damaged property, report major covered events like fires, floods, or theft. If you aren’t sure which of these events are included, check your policy. 

At WellnessPro, for example, we cover the property you rent or temporarily occupy with the owner’s permission. So if you’re renting a booth and a hair salon fire or flood damages rental property, our insureds should let us know.

5. A client accuses you of using or selling defective products.

If you’re insured with a provider like WellnessPro, you have product liability coverage for claims related to hair, skincare, nail, and makeup products and tools. Sometimes even basic supplies, like towels and cotton balls, are covered, too. So, in the event your customer calls complaining about an allergic reaction to your makeup products, the shampoo you recommended, or the facial cleanser you sold them, report to your insurance.

Note, however, that products you manufacture or relabel often do not qualify. Read our article to learn more about product liability insurance coverage and what it includes.

When NOT to File an Insurance Claim or Involve Your Insurance

When it comes to protecting your business, it’s better to be a little overprotective than to throw caution to the wind. 

At the same time, we don’t want you to be paranoid about the small potatoes. Some incidents can certainly be handled without your insurance knowing. For example:

• Small incidents or conflicts that can be easily resolved with customer service. For example, you go a touch too heavy on the wax and remove more eyebrow than your client asked for. Like half their eyebrow. But you comp them with a gift card for a free service, and you win them back with smiles and hugs after the next appointment goes swimmingly.
• A past client posts a negative review about a not-so-positive experience they had. They’re honest and their complaints are valid, and they express no intention of taking their complaints further than the negative review.
• No actual damages occur, or no one actually gets hurt. For example, a client slips or trips while leaving your salon but catches themselves and leaves uninjured. Or all they need is a basic band-aid from your salon first aid kit.
• You incur damage to your own property, which is a common policy exclusion.

Steps to Take When Involving Your Insurance

After reading our above examples of when and when not to file an insurance claim, perhaps you realize it’s time to get your insurance involved. What’s next?

To make the process easy for both you and your claims handling team, here are some important steps to consider:

• Document.

Save invoices, emails, and other relevant documentation where it’s easy to find. Also, before you call, jot down notes so you don’t forget or misremember key details.

• Review your insurance policy.

Many policies outline specific expectations, like who to call, on what timeline, and for what concerns. Review your terms, conditions, definitions, and exclusions so you’re familiar with the process.

• Notify your insurance provider ASAP.

Get in touch as soon as you reasonably can. Don’t delay unnecessarily.

• Cooperate.

In any potential claim, your cooperation is imperative. Be prepared to provide relevant documentation, attend necessary hearings or trials, and answer questions as truthfully and accurately as possible. It pays to work closely with your defense counsel so you can present a united front when the time comes.

The first step to great claims handling: great insurance.

That’s not all. Believe it or not, great claims handling starts long before the claim even happens. It starts with finding the right insurance provider.

Some business owners fall into the trap of securing the first low-cost policy they can find. They choose to “get it over with” instead of checking it’s a good fit.

Wellness businesses have the right fit with WellnessPro. Not only do we offer competitive pricing (starting at just $159 for the whole year). We also crafted our policy with fitness, beauty, bodywork, nutrition, and other wellness professionals uniquely in mind. We understand your industry’s claims, and we’re ready to be a resource you can rely on. Why settle for anything less?

Tell us more about your business and get covered in minutes with our easy, online app.