Your Client’s Claim Was Just Filed: 7 Moves to Defend It

Who This Is For

You run a business. You carry liability insurance—general liability, professional liability, maybe a commercial umbrella. You think you're covered. Then a claim lands: a customer slips, a client says your advice cost them money, a product fails. What do you do? This is a practical walkthrough for the small-business owner who just got served or threatened with a suit. It's not legal advice—it's the playbook your insurer expects you to follow.

Step 1: Read Your Policy—All of It

Before you call anyone, pull out the policy. Not the certificate of insurance—that one-page summary that lists limits and dates (The Hartford). The actual contract. Look for the coverage triggers. General liability is usually occurrence-based: claims for incidents that happen during the policy period are covered even if reported later. Professional liability is usually claims-made-and-reported: you need the claim filed while the policy is active, and you must report it within the extended reporting period—typically 30 to 60 days, extendable for a cost (The Hartford). Know which one you have. That difference is the first thing that determines whether you're covered.

Step 2: Notify Your Insurer Immediately

Most policies require prompt notice of a claim. Don't wait. Call your broker or the insurer's claims line. Provide the basics: what happened, when, and who's involved. Don't admit fault. Don't offer to settle. Just report. If you delay, you risk losing coverage. The insurer will assign a claims adjuster and, if needed, defense counsel. Your policy likely covers legal fees, but watch how they're paid: general liability defense costs are typically paid in addition to the policy limit, but professional liability defense costs are often included within the limit (IRMI). That means a $1 million policy might only leave $700,000 for a settlement if defense eats $300,000. Know that going in.

Step 3: Preserve Everything

This is the step most people skip. Emails, contracts, design files, maintenance logs, security footage—save it all. If a customer claims your product injured them, you need records of manufacturing, quality checks, and warnings. If a client claims your advice was negligent, you need the engagement letter and any disclaimers. The legal concept here is negligence: failure to act with the care a reasonable person would exercise. To defend, you must show you acted reasonably. That requires evidence. Also, don't delete anything, even if it looks bad. Spoliation can sink your defense.

Step 4: Understand What's Covered—and What's Not

Liability insurance is not a blank check. General liability covers bodily injury and property damage—like a slip and fall or a broken window. It also covers personal and advertising injury, such as libel or copyright infringement (The Hartford). Professional liability covers errors and omissions—negligent acts, mistakes, or failure to perform professional duties (Cornell Law). But it does not cover intentional misconduct, fraud, or criminal acts (Cornell). It also doesn't cover bodily injury claims—that's general liability territory (The Hartford). Product liability is usually included in general liability, covering design defects, manufacturing defects, and improper warnings, but product recall requires a separate endorsement (The Hartford). And if you have a commercial umbrella, it extends limits over multiple underlying policies—but not over property insurance (The Hartford). Know these boundaries before you assume coverage.

Step 5: Consider the Claim's Value—and the Legal Landscape

Now, the claim has a dollar figure. Maybe it's a demand letter for $50,000; maybe it's a lawsuit for $2 million. Your policy limits matter. A standard commercial general liability policy has a $1 million per-occurrence limit and a $2 million aggregate (IRMI). Most client contracts require at least $1 million (IRMI). But settlements and awards have been climbing. The Insurance Information Institute reports that settlements and case damage awards increased 27.5% on average between 2010 and 2019 (Triple-I). And social inflation—driven by third-party litigation funding, plaintiff advertising, and eroding damage caps—is a real pressure on insurers' costs (Triple-I). That's why your defense strategy matters: a modest early settlement might be wiser than rolling the dice on a jury.

Step 6: Cooperate with Your Defense—but Stay in Control

Your insurer assigns a lawyer. You must cooperate: provide documents, attend depositions, be truthful. But remember, the lawyer's client is you, not the insurer—though the insurer pays the bills. Conflicts can arise, especially if the claim exceeds policy limits. If the plaintiff offers to settle for the policy limit, your insurer might want to settle, which is usually fine. But if they don't, and a verdict exceeds limits, you could be personally exposed. In that situation, you may need your own counsel to protect your interests. It's rare, but it happens.

Step 7: Think About Future Coverage

After the dust settles, review your coverage. The market is shifting. For example, D&O rates for public companies dropped 9.5% in late 2024, but brokers say rates have bottomed out (Lockton). Medical malpractice premiums have risen for seven straight years, with 39.9% of premiums increasing in 2025 (AMA via Insurance Journal). General liability and medical malpractice markets are behaving counter-cyclically, with concerns about social inflation and nuclear verdicts (WTW). The point: don't assume your current limits will be enough next year. Talk to your broker about raising limits or adding an umbrella.

What Can Go Wrong

The biggest mistake is waiting. A claim sits on your desk for three weeks. You finally report it. The insurer says, "That's outside the extended reporting period"—and you're on your own. Or you admit fault to the plaintiff's lawyer, and that admission becomes evidence. Or you settle a claim without your insurer's consent, and they deny coverage because you breached the policy's cooperation clause. These are real scenarios. Don't let them happen to you.

Bottom Line

The single best move when a claim lands is to report it to your insurer immediately—before you do anything else. That one action starts the defense process, preserves coverage, and keeps you from making a costly mistake. Everything else follows.

Sources

• IRMI - https://www.irmi.com/articles/expert-commentary/contractors-professional-liability-and-the-cgl
• The Hartford - https://www.thehartford.com/general-liability-insurance
• The Hartford - https://www.thehartford.com/professional-liability-insurance
• Cornell Law School Wex - https://www.law.cornell.edu/wex/errors_and_omissions
• Triple-I - https://www.iii.org/article/social-inflation-hard-to-measure-important-to-understand
• Insurance Journal - https://www.insurancejournal.com/news/international/2026/05/06/868716.htm