Top reasons why your claims aren't being paid
When it comes to making an insurance claim, there are a variety of reasons why it might not be paid out in full, or at all. To help avoid any unpleasant surprises, we've compiled a list of the top reasons claims may be reduced or rejected.
Christie Insurance
Insuring your business, your interests and your family
1. Non-disclosure
It is essential that any changes (material facts) that may affect your existing insurer’s level of risk (good, bad, or indifferent) are disclosed. Examples of material facts include (but are not limited to): change of owner/business partner, change of address, change of the use of the premises, planned/ongoing structural building works, previous County Court Judgments (CCJs), adverse directorships, criminal records, and any past insolvencies. Failing to disclose such information can result in a claim being rejected.
2. Underinsurance and Misunderstanding Percentage Uplift/Declared Value Basis of Cover
Insurance policies often include both a "declared value" and a "sum insured" for buildings. The declared value should accurately reflect the building’s value on the first day of the insurance period. The sum insured typically includes an allowance for inflation throughout the year (usually 15–25%). However, the sum insured will only protect you adequately if the declared value is correct.
One of the most common issues is underinsurance. It's vital to have accurate, up-to-date valuations for your buildings, contents, and stock. Figures show that as a large amount of buildings may be underinsured.
3. Inadequate Business Interruption (BI) Cover, Also Known as Loss of Revenue
Business interruption cover protects businesses from loss of income during periods when you cannot operate normally due to unexpected events (e.g., fire, escape of water). There are various types and levels of cover, and it is normally added to another policy (e.g., property). The indemnity period begins on the date when the loss/damage occurs and ends no later than the maximum indemnity period, which can be arranged from 12 months, up to 36 months.
Whilst a 36-month indemnity period may seem excessive, it often provides the necessary time to restore your business to its trading levels before the loss. Depending on your specific situation, 24 months may suffice, but 12 months is often inadequate.
4. Lack of Insurable Interest
To make a valid claim, you must have a financial stake in the property you’re insuring. Without this, your claim could be rejected as it is a fundamental pre-requisite for any insurance policy.
5. Misrepresentation of Risk
Even minor misrepresentations can lead to claim denial under your insurance policy. For instance, if part of your building has a flat roof, it must be disclosed to your insurer.
Under the Insurance Act 2015, insurance contracts are based on good faith, and you have a duty to make a fair representation of the risk which includes disclosure of:
- every material circumstance which, as a policyholder, you are expected to know or ought to know about the risk for which you are seeking insurance;
- sufficient information to put a prudent insurer on notice that it needs to make further enquiries to reveal those material circumstances.
You must ensure that any information you provide is correct to the best of your knowledge. In the event that you make a misrepresentation of information, which is considered a deliberate or reckless misrepresentation, an insurer is allowed to avoid your policy, which means that any claim you make may not be met.
6. Lack of Supporting Documentation
Claims can be rejected if you don’t have the necessary documentation to back them up. This could include lacking regular lift maintenance records or failing to keep receipts for cash sales. Ensure you comply with all regulations and keep proper records.
7. Breaches of Security Warranties
Security warranties are specific conditions in your policy that must be adhered to. For example, your alarm system must meet the required standards. Make sure you understand your obligations under these warranties.
8. Exclusions for Fires or Escape of Water Claims Caused by Cannabis Farms
This is becoming an increasingly significant issue for landlords. Many policies now exclude cover for claims for properties used as cannabis farms, so it’s crucial to undertake thorough checks and regular inspections to ensure your property is not being used for illegal activities. If you’re unsure, consult us.
9. Lack of Reasonable Care/Precautions
To avoid the risk of insurers declining a claim for a breach of reasonable precautions conditions (applicable across many types of insurance policies), it is important for you to be aware of the continuing obligations throughout the duration of a policy. An example of a claim not being paid due to lack of reasonable precaution is lack of building maintenance on a property policy. Or, under a motor policy, an example is when keys are deliberately left in the ignition, whilst the driver leaves their vehicle unattended to go inside their house, shop, or office briefly, resulting in the car being stolen.
By being aware and understanding these common pitfalls, you can take steps to ensure your insurance cover is robust, reducing the likelihood of issues when it comes to making a claim.
If you’re unsure about anything or would just like some advice, please get in touch with our dedicated Claims Advisor:
Rachael Brafield
Claims Advisor