One of the most effective methods of controlling insurance costs is for a business owner to absorb the cost of minor incidents, rather than file a claim with an insurance company. This is considered good risk management and rewards the business owner with competitive pricing at insurance renewal time.
There are some guidelines that need to be recognized when determining if it is appropriate for a propane distributor to pay potential claims on its own or if the matter needs to be referred to the insurance carrier. It is always good advice to have strong communication with your agent and insurance company so there are no misunderstandings regarding the nature of an occurrence. We have outlined some items to consider before paying a claim yourself. When in doubt, consult with your agent for advice.
1. Your Policy Is a Contract
Insurance policies are legal contracts, and that contract-language requires certain duties of both parties to the contract (the insured and the insurance company). One of those stated duties is for the insured to report an “occurrence” to their insurance company in a timely manner.
So, what constitutes an occurrence? Most liability insurance policies contain this language: “‘Occurrence’ means an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”
Specifically, liability insurance policies outline the obligation of the insured to notify the insurance company of an occurrence “as soon as practicable.” While individual state courts determine what constitutes “practicable,” it is critical the insurance carrier has an opportunity to gather pertinent details of the occurrence early on so it can properly defend its insured if suit is filed. If too much time has passed and the insurance company’s ability to defend has been severely compromised, they can technically deny coverage. These instances are rare, as courts set a high bar for denial of coverage, but no businessperson wants to find themselves in such a precarious position. For practical purposes, evaluate the potential severity of a situation and have a discussion with your agent if necessary. Insurance companies don’t expect you to notify them of every minor incident that occurs during the course of your daily business operations, but know they expect to be notified when something substantial occurs.
2. First-Party Property Damage Occurrences
Paying for damage to your equipment and business property is a long-accepted method of keeping your insurance claim history clear. Business owners should adopt a policy to pay for damage under a specified dollar amount, in accordance with best practices methodology. Consider what deductible is acceptable, then set your internal policy accordingly.
If you decide to pay out-of-pocket for small claims, be sure your insurance policies reflect that amount in the form of a higher deductible so you can receive the appropriate credit to your insurance premium. Insurance policies should be reserved for catastrophic events, and not as a “maintenance” policy.
3. Third-Party Property Damage Occurrences
Minor incidents that involve property damage only — and no bodily injury — are good candidates for a business owner to make payments directly to a third party that sustained damage from your operations. Minor physical damage-only auto incidents are an example. If repair estimates can be gathered quickly and the financial impact is acceptable, these types of incidents can often be resolved without insurance company interaction. Other examples of eligible occurrences would be a damaged mailbox, tire ruts in a yard and other minor instances. The key term here is “minor.”
It is advisable to have an attorney draft a simple release of liability document to be signed by the party accepting money for repair, in recognition that the amount being paid is final. This protects the business owner from future issues emanating from the same incident. Insurance companies require that this same type of release be signed before making a final claim payment.
4. Third-Party Bodily Injury Occurrences
Anytime an occurrence results in bodily injury to a third party, your insurance carrier should be notified immediately. What begins as a seemingly minor injury can escalate quickly. Most businesses are not equipped to monitor the status of a third-party bodily injury matter, and a situation can spiral out of control without the knowledge of the business owner.
In one instance, I witnessed a situation in which a minor cut to a hand became infected and resulted in the amputation of a thumb. By the time the business owner became aware of the full extent of the situation, attorneys were involved and the hospital was seeking payment of $160,000.
5. Propane Product-Related Occurrences
Anytime a fire or explosion occurs at any location serviced by a propane distributor, the insurance company should be notified immediately. Preservation of evidence and “cause and origin” investigations are critical to the determination of liability. Even a seemingly obvious situation — in which propane was not a factor — can result in suit being filed months or years after a fire-related occurrence.
It is very important to have documentation from the time of the event so any future legal filings can be defended properly. Testing of gas in the tank for proper levels of odorant, securing regulators for analysis and procuring statements from the jurisdictional fire marshal are all necessary steps in determining what factors may have contributed to a fire.
Prompt notification to your insurance carrier is imperative for them to determine what steps need to be taken.
6. Workers’ Compensation
Take time to understand the employment laws of the state(s) in which you operate. Because workers’ compensation laws differ in every state, each jurisdiction dictates what is allowed and required. Some states allow an employer to pay “medical only” claims, but many have a limit ($500 to $5,000), after which the claim must be officially reported to workers’ compensation. Paying eligible medical only claims and not filing a formal claim with a workers’ compensation carrier is a good risk management tool that can keep claims from affecting your experience modification factor.
However, anytime an employee injury involves lost time from work or potential for ongoing treatment beyond an urgent care visit, the claim should be referred to a workers’ compensation carrier to handle. It is important to have a procedure in place to evaluate each incident and determine the proper course of action, based upon what your state workers’ compensation laws allow.
Additionally, many business owners are not aware of their own state’s Division of Employment requirements for reporting employee-related work injuries. Some states require an employer to report all workplace injuries to the appropriate state agency regardless of severity, and failure to do so can result in substantial fines.
Your Insurance Carrier Should Be a Partner & Resource
Don’t hesitate to communicate with your agent or insurance company about a claim situation. It is perfectly acceptable to notify an insurance company of an incident, then pay the amount yourself and have the claim closed for zero dollars paid. The insurance company will not penalize your premium at renewal for conducting best practices methodology. As with most things in life and business, it’s all about communication.