A Legal Take on Insurance Reservation of Rights Letters

You have alerted your insurance company you need coverage, your insurer has appointed counsel, but then you receive a reservation of rights letter stating that the company is reserving its rights to deny coverage in the future because the incident may fall within one of the policy exclusions. Many times, policyholders ignore these letters because their immediate need, the appointment of counsel, has been met. However, the better course is to respond to this letter, not to ignore it.

What should you do? At a minimum, you should respond with a general statement that you disagree with the reservation of rights and provide evidence (documentation or letters) showing reliance on coverage. In addition, you may want to talk with your insurance broker or underwriter and urge them to assist you in challenging the reservation of rights.

A second issue that sometime arises is that your insurer calls up or sends an email requesting additional information from you. Under all insurance policies, a policyholder has a duty to cooperate, but that duty to cooperate is connected with the defense against the underlying claim, rather than supplying information that is unrelated but may bear on coverage. The policyholder should ask why the insurer wants this information – Is it to assist the insurer in defending the claim or is it to be used to avoid coverage? If the latter, the policyholder or his or her attorney may want to suggest that such a request is not made in good faith and that the policyholder has no obligation to provide information to defeat coverage. If a response is given, again it should be to show coverage through documentation and letters.

If you need assistance with a reservation of rights letter or another insurance issue having an attorney who is familiar with insurance questions is a good first step. At DTC lawyers we are dedicated to our clients and are there to help. Feel free to contact us should you have any questions regarding insurance coverage.