When insurance policyholders file a claim, it takes time for the insurance company to investigate the claim and decide whether to accept or deny it.
In these situations, insurance companies send a reservation of rights letter to the policyholder to let them know that all or part of their claim might not be covered under the insurance policy, but that the claim is being investigated.
A reservation of rights letter also tells the policyholder that the insurance company is reserving its right to deny the claim. One purpose of a reservation of rights letter is to protect an insurance company from a later claim that they waived their right to defend.
When insurance companies receive an initial claim, they typically receive minimal information and need more time to investigate, which is another reason a reservation of rights letter is sent.
Use specific and detailed language about the particular claim
A reservation of rights letter should not contain generic, boilerplate language about the claim. It should include information about the individual policy and the specific claim being investigated.
To the extent possible, the letter should also provide information about which part of the claim may not be covered. A policyholder should know that if the investigation requires additional information or documentation from them, they should contact the insurance company.
Insurance companies must still respond to any ongoing lawsuits
Insurance companies are not relieved of deadlines or obligations associated with any existing insurance litigation simply because a reservation of rights letter was sent. Pending litigation should still be addressed.
Once a reservation of rights letter is sent, an insurance company can continue investigating a claim, with the security of knowing that their right to defend remains.