What is a Reservation of Rights Letter?

By Mario E. Lopez, Esq. 

When presented with notice of an insurance claim, an insurer must determine whether the claim is covered by its policy. If the insurer needs additional time to investigate the claim before making this determination, if they suspect some coverage my not apply, or if the insurer believes that the insured has violated a policy term, it usually sends the insured a reservation of rights letter. A reservation of rights letter is written notice of an insurer’s intention to disclaim coverage and assert policy defenses. A reservation of rights letter essentially allows the insurance company to protect themselves if they decide not to provide coverage for your claim.The insurance company might send a reservation of rights letter immediately after receiving your claim. Or, the insurance company’s adjuster may send a reservation of rights letter after visiting your property to inspect the claim if you won’t sign a non-waiver agreement. A reservation of rights letter must be issued within a reasonable period of time after receiving notice of a claim.

Why do insurance companies write these letters?

An insurer may lose any potential defense it does not include in the letter and it can help them avoid making a huge payout in the future if they determine some or all coverage for the claim losses does not apply. The conditions for the reservation of rights are outlined in the reservation of rights letter from your insurance company. This may include things such as suspicion of fraud, negligence of the insured, failure to uphold duties of the policyholder, or any other reasons under the policy that the insurance company may deny coverage for some, or all, losses.

Some letters will ask that you provide specific information to aid in the insurer’s investigation, or to reply if the insured disagrees with anything in the letter. Requests for information should be responded to promptly so as to comply with the insured’s duty to cooperate, and other duties stated in the policy.

If you feel your insurance company sent a reservation of rights letter that did not adequately explain the situation, then you may want to talk to an experienced attorney to ensure your claim proceeds smoothly. Our team of attorneys have decades of experience providing affordable representation to Individual and Corporate policy holders facing a wide range of denied, delayed or underpaid insurance claim issues.

Contact our law firm today at (305) 300-3000 for a free consultation!