Most Common and Costliest Small Business Claims
By Insurance Advisor Team
Most Common and Costliest Small Business Claims

When it comes to business operations, risks can often outweigh safety measures, due diligence, and SOPs, leading to workplace accidents. Some of these incidents can cost a fortune to mend and rectify. Insurance is a crucial safeguard, protecting enterprises from unforeseen financial setbacks stemming from a variety of such incidents. While business insurance policies cover a range of potential risks, some claims are notably more expensive than others. Understanding these costly claims can help business owners and managers prioritize risk management strategies and select insurance coverages that align with their most significant vulnerabilities. It also allows insurance companies to evaluate the likelihood of claims and size of loss payouts.

Business insurance encompasses several types of coverage, each designed to address different risks. The most common policies include general liability insurance, property insurance, business auto, professional liability insurance, workers' compensation, and business interruption insurance. While the specific claims that a business might face depend on its industry, size, and operations, certain types of claims are universally recognized for their financial impact. We have clearly distinguished between the most common types of insurance and the costliest insurance claims. Both are not the same, i.e. the most purchased insurance policy may not necessarily have to have the most claims, or the largest amounts paid.

Top Costly Business Insurance Claims

Data Breaches and Cybersecurity Incidents

As businesses increasingly digitize their operations, the landscape of cyber threats has grown more complex and prevalent. Incidents such as data breaches and cybersecurity attacks have the potential to reveal confidential customer data, resulting in substantial legal expenses, regulatory penalties, and the costs of notifying impacted customers and providing them with credit monitoring services. To comprehend how severe these incidents can be, we have an example of the largest ransom ever covered by an insurance company for a ransomware attack on a client. The amount reached an unprecedented $40 million. Beyond the immediate financial consequences, the damage to a company's reputation can further exacerbate losses by driving away business. According to the Small Business Administration, a staggering 88% of small business proprietors feel at risk of a cyberattack.

Product Liability Claims

Businesses engaged in the manufacturing, distribution, or retail of goods face product liability claims if their products cause harm to property or injury to customers. These claims can escalate into costly legal battles, resulting in massive payouts for damages and expenses related to product recalls (which are not covered by a standard general liability policy) and inflict damage on a company's reputation, thus impacting its long-term profitability. Notably, in product liability cases, proving negligence is not obligatory. This makes it easier for affected individuals to pursue civil litigation and obtain the compensation needed for recovery and well-being. We see how, in 2020, juries awarded an average of over $7 million in personal injury cases.  

A significant instance of product liability claims involves a multidistrict litigation (MDL) filed in the Northern District of California federal court. It targets social media giants like Meta, Instagram, Snap, Byte Dance (TikTok), and Alphabet (Google, YouTube) for alleged failure to warn parents and teenagers about the risks of adolescent social media addiction, including eating disorders, depression, and suicidal thoughts. Plaintiffs primarily based their case on claims of defective product design, seeking compensation for emotional and physical harm stemming from the defendants' flawed platforms and products. Alleged defects include product designs crafted to prolong screen time, potentially fostering addictive behavior in adolescents.  

These examples show us a picture of the product-related issues and the potential for substantial damage payouts where the litigating side attempts to extract maximum damages, reflecting the continuing trend of social inflation since 2015.

Professional Liability Claims

Professional liability insurance, commonly referred to as errors and omissions (E&O) insurance, offers protection to businesses providing professional and personal services. This coverage extends to legal expenses and damages incurred due to failure to meet service expectations or negligence. Professions such as law, healthcare, and accounting, where the consequences of advice or service provision can be significant, are particularly vulnerable to costly claims under this insurance.  Note that Health Care Malpractice insurance differs in what is covered compared to all other professional liability because it pays for bodily injury claims while other professional liability only covers damages owed due to financial losses suffered by a client or third party resulting from a professional error or omission. 

Surprisingly, professionals across various fields, including insurance agents, brokers, property managers, and home inspectors, are facing professional liability claims as well. These claims assert that third parties suffered financial losses resulting from negligence, misrepresentation, or errors committed by these professionals. Ipso facto, any professional whose client is exposed to financial risks may find themselves liable to professional liability claims, too. This has complicated the legal picture of Professional Liability claims.

Workers' Compensation and Employment Practices-Related Claims

Worker's compensation claims, arising from injuries or occupational-caused illnesses sustained by employees while on the job, pose significant financial burdens for businesses if not insured. This is the case particularly in industries where physical labor is prevalent. Additionally, claims related to employment practices, such as wrongful termination, discrimination, and harassment, can lead to costly legal battles and settlements.  

For instance, in August 2023, the EEOC settled its first-ever discrimination lawsuit involving AI hiring software for $365,000. The lawsuit alleged that the software discriminatorily rejected female and male applicants aged 55-60.  

Another example stems from Illinois. The Biometric Information Privacy Act (BIPA) has triggered numerous lawsuits in that state, including a recent case against Ingalls Memorial Hospital. In November 2023, the Illinois Supreme Court addressed a pair of class action suits filed by two nurses. These nurses alleged that their employers violated BIPA by mandating the use of fingerprint scanners to access a medication-dispensing system that provided medication to patients.  

With these examples scoured from across various sources, we wish to show how expensive and time-consuming litigation can be.

Property Damage and Business Interruption

Natural disasters, fires, and other catastrophic events can inflict extensive property damage and significantly disrupt business operations. The expenses associated with repairing or replacing damaged property can be substantial, and the loss of income during periods of downtime further compounds the financial strain. Business interruption insurance is crucial in mitigating these challenges by covering lost revenue and the additional expenses incurred in resuming operations. In 2023, for the second consecutive year, business interruption ranked as the foremost concern for companies, underscoring the importance of this insurance coverage.  

The significance of business interruption insurance became even more evident during the COVID-19 pandemic as interruptions escalated dramatically. Most of these business income claims were not insured due to there not being physical damage to the building which is the coverage trigger and because of the virus exclusion in most policies. Shortages and transportation delays exacerbated the impact of natural disasters, fires, and equipment breakdowns, resulting in material shortages, extended repair times, and increased business disruptions. While many of these supply chain pressures have eased in 2023, business activity has gradually approached normalcy compared to the previous year, leading to a corresponding moderation in business interruption claims activity.  

Nevertheless, not all business interruption loss activity has subsided. Natural catastrophes and fire and explosion incidents continue to be the primary causes of business interruption claims, with natural catastrophe-related losses witnessing a surge. The majority of the costliest business interruption events for large corporations in the past two years are attributed to natural catastrophes. Instances such as the damage caused by Hurricanes Ian and Fiona and several winter storms in the U.S. in 2022 serve as notable examples of such disruptive events.

Vehicle Accidents

For businesses with company-operated vehicles, accidents not only disrupt operations but also result in substantial expenses related to vehicle repairs or replacement, medical costs, and liability for damages and injuries incurred. To manage these financial risks, commercial auto insurance is crucial, though it comes with its own set of costs through premiums and claims, which can be particularly burdensome for companies with multiple vehicles but is required by law in most states.  

In certain jurisdictions, compensation in legal disputes is allocated according to each party's degree of fault. Here's an overview of how fault determination affects compensation:

  • In "contributory negligence" states, a driver who is found to be even minimally (1%) at fault in an accident becomes ineligible to recover any compensation from the other, more significantly at-fault driver.  
  • "Pure comparative negligence" states have different rules that allow a driver to receive compensation from another party even if they were predominantly at fault. For instance, a driver 75% responsible for an accident could still claim and obtain 25% of the total damages from the other party.  
  • In "modified comparative negligence" states, a driver can seek compensation provided they are not deemed 50% or 51% (depending on the state) or more at fault. The amount of compensation received would be adjusted based on the claimant's level of fault.

According to a Martindale-Nolo survey, the average payout for car accident victims who did not sustain injuries was $16,700. In contrast, injured parties received an average of $29,700.

Mitigating the Risks

Understanding the costliest business insurance claims is only the first step. Businesses must actively work to mitigate these risks through comprehensive risk management strategies. Summing up the kind of liability claims, we have prepared some basic steps:

  • Implementing robust cybersecurity measures to protect against data breaches and cyber-attacks. Regular training for employees on recognizing phishing attempts and securing their devices is crucial.  
  • Adhering to safety protocols and providing ongoing training to employees to reduce the likelihood of workplace injuries and ensure compliance with industry regulations.  
  • Engaging in thorough product testing and quality control measures to minimize the risk of product liability claims.  
  • Investing in professional development and adhering to best practices to reduce the risk of errors and omissions claims.  
  • Regularly reviewing and updating business insurance coverage to ensure it aligns with the current risks and values of the business's assets.  
  • Proactively minimizing exposure to discrimination, harassment, and other forms of abusive behavior to protect against employer liability claims.  
  • Advanced Planning for the impact of natural catastrophes.


While business insurance provides a critical safety net for companies, the cost of claims can significantly impact a business's financial health. By identifying the types of claims that are most costly and implementing effective risk management strategies, companies can better protect themselves against these potential financial pitfalls. Moreover, working closely with insurance providers to understand and obtain adequate coverage can ensure that businesses are prepared to weather these challenges, maintain their operations and safeguard their financial future.

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