When Getting Claims Settled, It Pays to Pay Close Attention
What does it mean to “manage” an insurance claim, and why should the small-business owner worry about doing so?
Not doing so can cost you money. In a worst-case scenario, not being on top of your claim can cost you your business.
A big claim--for example, a fire that shuts your company down temporarily--may well put you and your insurer at odds over the extent of your loss and even the extent of your coverage. You must prove your loss, and if you disagree over the extent of your coverage, you may also have to prove that your insurance policy means what you think it means.
Hence, managing a big claim means persuading your insurer that your policy covers the loss as you see it, so that you can get back to business.
Your insurer wants a quick settlement too, but it must also make sure not to pay more than your coverage warrants--and not to pay anything at all for losses not covered under your policy.
This is not to suggest that insurers try to undermine the small-business owner in settling claims, or vice versa. It’s to point out that insurance companies and their customers don’t always see eye-to-eye and that “managing” an insurance claim may mean different things to both parties.
“People sometimes think that insurance companies are out to get them,” says Joseph Macchia, chairman, president and chief executive of Gainsco Inc., a big Texas-based property-casualty insurer that specializes in small-business coverage. “While that may be true of some companies, most have the same attitude we do: Let’s pay the claim and move on.
“Insurance makes people whole after they have suffered a loss,” Macchia says. “It’s not a reward system. So the best way to manage a claim is to give your insurer the information it needs to settle the claim.”
In practical terms, this means supplying the insurer with proof of loss--for example, medical bills run up by someone injured on your premises, lost income while shut down by a flood, or the value of machinery destroyed in a fire.
“The more information we get and the faster we get it, the better we can assess what the claim is worth and offer that money,” Macchia says. “If the business owner actively participates in the process, we can generally settle a claim for less money, particularly when the claim involves a third party.”
Put another way, a big claim quickly settled is a claim that doesn’t land in court, with contingency fees due to a plaintiff’s attorney.
Oddly enough, Macchia says, some business owners actually cooperate with a plaintiff’s attorneys against their own insurer--in exchange for the plaintiff’s pledge not to pursue a claim over the limits of the policy coverage.
Many bring in public insurance adjusters to handle big claims. This can create an adversarial relationship between insured and insurer, but public adjusters have benefits:
* They take on the job of negotiating with your insurer, freeing you to concentrate on getting back to work.
* They can level the playing field between you and your insurer, often resulting in a bigger settlement.
“An insurance policy is a complex contract, and unless you fully understand your own coverages-- which most business owners don’t--you’re on an uneven playing field when you deal with an insurance company,” says Joel Bagelman, a senior claims adjuster with the Los Angeles firm Rubin, Palache & Associates.
“On a small loss, the business owner doesn’t need someone like myself,” says Bagelman. “But on a big loss, the business owner needs help--because many things in an insurance contract are gray, and they’re all debatable.”
Bagelman’s firm takes cases involving losses of $50,000 and higher. Its fees range from 10% of a $50,000 settlement to perhaps 5% or 6% for a $1-million settlement.
Bagelman recently worked with a clothing retailer fighting over his business-interruption insurance, which covers lost income, among other things. The retailer lost his entire spring line to a burglar, Bagelman says, and had to prove not only the value of his inventory but his lost income as well.
He valued his inventory at its cost, $200,000, but given the fickle nature of the clothing business, he had no idea how much income it might generate, Bagelman says.
“Business-interruption insurance is a pure accounting function,” he says. “But you can take the raw data and come up with five different outcomes, all valid.”
Bagelman’s firm insisted that the insurer look at the record of the retailer’s sales over the next four months and compare that to the year before. “Originally the insurer had estimated the loss of income at one month’s sales,” says Bagelman. “We wound up getting him twice that.”
Meanwhile, the retailer scrambled to find other suppliers of clothing but feared losing customers who expected to see his regular lines. This, too, may have cost him some income.
“Insurance companies prefer not to see us,” Bagelman says. “But we’re not there to make anybody rich. We’re there to get the claim settled as provided for in the policy.”
Fortunately, most business owners will never have a big claim. But those who do can run into problems they might not have considered: how to replace inventory, how to replace equipment, how to take care of tenant improvements.
“I don’t advocate that the business owner buy every insurance coverage possible,” says Bagelman. “Money is a limited resource, and you have to know what risks you can afford to take. But when a big claim comes in, you need somebody who understands what coverages you do have.”
Freelance writer Juan Hovey may be reached at (805) 492-7909 or by e-mail at jhovey@compuserve.com
