What is a Reservation of Rights Letter?

By Mario E. Lopez, Esq. 

A reservation of rights letter is a document from your insurance company that explains various reasons why the insurer might not cover a certain claim. When you purchase homeowner’s insurance, property insurance, or business owner’s insurance, you expect your insurance company to cover certain situations. You pay a premium to your insurance company. In exchange, the insurance company guarantees certain coverage for certain situations.

Today, a growing number of insurance companies will try to absolve themselves of that liability by sending you a “reservation of rights” letter or “ROR” before conducting further investigation into your claim if they suspect some coverage my not apply. ROR letters are not outright denials, but they may include partial denials as to certain items in a claim. A reservation of rights letter essentially allows the insurance company to protect themselves if they decide not to provide coverage for your claim.

Why do insurance companies write these letters?

Under most states’ laws, a liability insurer that has a defense against a claim must notify the insured of limitations on the coverage available. If the insurance company admits or implies that a claim is covered, they can be estopped from denying coverage later. In other words, if the insurance company sends a reservation of rights letter today, 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. If they don’t send a letter today, then they may be required to cover a wider range of situations.

Generally, an insurance company might agree to investigate and cover your claim “subject to a reservation of rights.” The conditions for that 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. 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.

Some letters are purely precautionary and do not request or require a response. Others do ask the insured to 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!