Insurance Claims Process

Filing an insurance claim initiates a process where the carrier investigates, evaluates, and resolves covered losses. Understanding the claims process helps set expectations, prepare documentation, and navigate potential issues. Claims processes differ between first-party claims (your property) and third-party claims (liability to others). For insurance fundamentals (policy structure, coverage triggers), see Insurance Primer.

First-Party vs. Third-Party Claims

First-party claims involve losses to the policyholder's own property or direct expenses. Examples: home fire damage, stolen car, business interruption from covered event, cyber breach response costs. The policyholder files the claim and receives payment (minus deductible) for covered losses.

Third-party claims involve liability to others—someone claims the policyholder caused them harm. Examples: customer injury on business premises, auto accident where you're at fault, professional services error causing client loss. The policyholder reports the claim, and the carrier defends and potentially settles on their behalf.

The distinction matters because processes differ: first-party claims focus on documenting and valuing losses, while third-party claims involve legal defense and settlement negotiations.

Filing a Claim

When to file: File claims promptly after discovering a loss. Most policies require "prompt" or "as soon as practicable" notice. Delayed reporting can jeopardize coverage, especially for third-party claims where late notice can prejudice the carrier's ability to investigate and defend.

How to file: Contact the carrier directly (phone, online portal, mobile app) or through your agent/broker. Have your policy number ready. For first-party claims, be prepared to describe what happened, when, and the extent of damage. For third-party claims, provide details about the incident and any demands or lawsuits received.

Initial information needed: Policy number, date and time of loss, description of what happened, location, extent of damage (first-party) or nature of claim (third-party), contact information for involved parties, and any police reports or documentation already available.

Claim number assignment: Carriers assign claim numbers for tracking. Keep this number for all communications. Claim numbers enable efficient follow-up and status checks.

Claims Investigation

First-party investigation typically involves: adjuster inspection of damage, documentation review (receipts, photos, estimates), expert evaluation if needed (engineers, appraisers), and determination of cause (covered peril vs. excluded cause).

Third-party investigation involves: reviewing incident details, interviewing witnesses, examining legal complaints, assessing liability (was the policyholder at fault?), evaluating damages claimed, and determining coverage (does the policy cover this claim?).

Adjusters are carrier employees or independent contractors who investigate claims. Property adjusters inspect damage and estimate repair costs. Liability adjusters evaluate legal exposure and negotiate settlements. Adjusters are the primary point of contact during claims.

Independent adjusters work for multiple carriers and handle claims in specific geographic areas. They're common for property claims in areas with frequent losses (hurricanes, wildfires). They have the same authority as carrier-employed adjusters.

Public adjusters represent policyholders (for a fee, typically 10-20% of settlement) and negotiate with carriers on the policyholder's behalf. Public adjusters can help with complex claims or disputes but reduce the net amount received due to their fee.

Documentation

First-party documentation should include: photos/videos of damage (before cleanup or repairs), receipts for temporary repairs or emergency measures, estimates from contractors or repair shops, inventory of damaged items with values, and records of related expenses (hotel during repairs, rental car, etc.).

Third-party documentation should include: incident reports, witness statements, correspondence from claimants or their attorneys, police reports if applicable, medical records if injuries involved, and any demands for payment or legal complaints.

Documentation timing: Document immediately after loss, before cleanup or repairs begin. Photos of damage in original condition are more valuable than after-the-fact descriptions. Keep all receipts and records organized.

Estimates and appraisals: For property claims, carriers may request multiple estimates or perform their own appraisal. Disagreements over repair costs can be resolved through appraisal clauses (independent appraisers determine value) or negotiation.

Timelines

First-party property claims typically resolve in 30-60 days for straightforward losses. Complex claims (extensive damage, coverage disputes, multiple parties) can take months. Factors affecting timeline: extent of damage, availability of contractors, need for expert evaluation, and coverage questions.

Third-party liability claims can take months to years depending on complexity. Simple claims (clear liability, minor damages) might settle in 30-90 days. Complex claims (disputed liability, significant damages, litigation) can take 1-3+ years.

Initial response: Carriers typically acknowledge claims within 24-48 hours and assign adjusters within 3-5 business days. Response times vary by carrier, claim type, and volume.

Investigation period: Property claims typically investigated within 7-14 days (adjuster inspection, documentation review). Liability claims may take longer if legal issues are complex.

Settlement and payment: Once coverage is confirmed and damages are agreed, payment typically occurs within 10-30 days. For property claims, partial payments may be made for emergency repairs while investigation continues.

Settlement Process

First-party settlements involve agreeing on the amount of covered loss. The carrier pays the agreed amount (minus deductible) directly to the policyholder or repair vendors. Policyholders can choose their own contractors (subject to carrier approval of estimates) or use carrier-recommended vendors.

Third-party settlements involve the carrier negotiating with claimants or their attorneys. Settlements can be: full payment of claimed damages, negotiated reductions, structured settlements (payments over time), or releases (claimant agrees not to pursue further claims). Policyholders typically have input but carriers control settlement decisions within policy limits.

Release agreements are common in third-party settlements. Claimants sign releases waiving further claims related to the incident in exchange for payment. Releases protect policyholders from future claims for the same incident.

Subrogation occurs when carriers pay claims then pursue third parties who caused the loss. If your car is hit by another driver, your carrier pays your claim then seeks reimbursement from the other driver's carrier. Subrogation can result in deductible recovery if the carrier successfully recovers.

Denials and Disputes

Claim denials occur when carriers determine: the loss isn't covered (excluded peril, outside policy period), policy conditions weren't met (late notice, failure to cooperate), or the claim exceeds policy limits. Denials are typically explained in writing with policy language citations.

Common denial reasons: Loss occurred before policy started or after it ended, excluded cause (wear and tear, intentional acts), failure to maintain property (leading to excluded damage), late notice prejudicing investigation, or breach of policy conditions.

Appeals process: Policyholders can dispute denials by: providing additional documentation, challenging coverage interpretation, requesting supervisor review, or invoking appraisal clauses (for property value disputes). Some states have insurance department complaint processes.

Bad faith claims: Carriers have obligations to investigate and settle claims fairly. Unreasonable delays, failure to investigate, or lowball settlement offers may constitute bad faith, creating additional liability beyond policy limits. Bad faith is fact-intensive and varies by jurisdiction.

Legal action: If disputes can't be resolved, policyholders may sue carriers for coverage or bad faith. Lawsuits are expensive and time-consuming. Most disputes resolve through negotiation or appraisal before litigation.

Key Numbers

Typical claim timelines: First-party property 30-60 days (simple) to 3-6 months (complex), third-party liability 30-90 days (simple) to 1-3+ years (complex with litigation).

Documentation: Take photos immediately, keep all receipts, maintain organized records. Documentation quality significantly affects claim outcomes.

Settlement amounts: Property claims typically settle for actual cash value (depreciated value) or replacement cost (if policy includes replacement cost coverage). Liability settlements reflect damages claimed, liability assessment, and negotiation.

Deductible application: Deductibles apply per claim for property, per occurrence for liability. Multiple related incidents may be treated as one claim or multiple claims depending on policy language.

Common Misconceptions

"Carriers always pay claims quickly" — Investigation takes time, especially for complex losses. Reasonable investigation periods are normal and protect both parties.

"Filing a claim always increases premiums" — Not necessarily. One claim may not affect rates, but multiple claims or large claims can. Some policies have claim-free discounts that are lost after claims.

"Carriers will pay whatever contractors charge" — Carriers pay reasonable costs for covered repairs. Disagreements over costs are resolved through estimates, appraisals, or negotiation.

"Third-party claims mean I'm automatically at fault" — Liability must be established. Carriers investigate and may dispute liability if evidence doesn't support the claim.

"Public adjusters always get better settlements" — Public adjusters can help with complex claims but charge fees (10-20%) that reduce net recovery. For straightforward claims, policyholders may do as well negotiating directly.

Jurisdiction Matters

Claims processes vary by jurisdiction. State insurance departments regulate claims handling, set timelines for responses, and handle consumer complaints. Some states have specific requirements for claim acknowledgment, investigation periods, and payment timelines. Bad faith standards vary significantly by state. When providing claims guidance, note that specific processes and timelines vary by location and policy type.