Too many small-business owners don’t really understand the nuts and bolts of their business insurance policies. And when disaster strikes and it comes time to make a claim, plenty of policyholders are shocked to find that they weren’t as protected as they thought. Here are seven reasons your claim will be denied:

Punishing Terms

If you are sued, your insurance company may cover damages resulting from bodily injury, property damage or even libel and defamation infringement up to the limits of your policy. Punitive damages, however, are not usually covered.

Protocol Pitfalls

If you fail to do certain things required by your insurance policy, your insurer may have the right to deny your claim. Other protocol pitfalls include failing to pay all premiums on time, spending money on lawyers without the insurance company’s consent, and not notifying your insurer of your claim within a specified period of time. All can lead to trouble when filing a claim.

Exasperating Exclusions

Business interruption insurance does not include coverage for such risks as emergency evacuations by civil authorities and major utility disruptions–unless they were specifically added to a policy. Watch for these and other exclusions.

Paper Chase

Critical documents–such as property titles, deeds and other original documents–are not typically covered by a standard property insurance policy, though you can buy separate insurance that will cover the cost to replace documents stolen or damaged by a fire or flood.

Bad Behavior

Insurance companies tend to throw up their hands if they believe something illegal has occurred. For instance, if one of your employees had an accident while driving drunk in a company car, consider that claim denied.

Application Errors

One common mistake is providing the wrong information in the insurance application. For example, if you told your insurer your building had an operational sprinkler system when you applied for the insurance, but it didn’t, that fire claim almost certainly will be denied. Indeed, even accidental misrepresentations can make your policy null and void.

Sudden Switches

“This year’s lawsuits may cause insurance carriers to exclude a certain risk next year,” says David E. Wood, co-founder of Wood & Bender, a law firm specializing in insurance policy enforcement. “They will inform you what they plan to exclude in the coming year, but the letter of notification may go unnoticed if you aren’t paying attention.” Best bet: Stay ahead of the underwriting curve for your particular industry.

Source: (Forbes.com)