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Reservation of Rights Letters: What Are They and How Can They Affect Your Claim?

| Jun 22, 2016 | Insurance Claims |

If you make a claim for coverage under your insurance policy, you are hopeful that your insurance company will be agreeable and pay for the claim you report. However, oftentimes the insurance company will agree to provide coverage, usually in the form of a defense to a claim, but under a “reservation of rights.”

Getting a reservation of rights letter from your insurance company is a red flag, and if you are in receipt of one, you should already be in contact with experienced and aggressive Broward County insurance claim lawyers who can advise you on the next steps.

The Reservation of Rights Letter

A reservation of rights letter is a letter in which your insurance company will begrudgingly agree to defend you under the terms of the insurance policy you purchased, while “reserving the right” to later deny coverage. This is the insurance company’s way of saying they do not yet have enough information to deny coverage of your claim entirely, but if the claim or suit against you unfolds in a certain way, and either by factual development or expert testimony the opportunity presents itself, coverage might be denied down the road.

Being defended under a reservation of rights is an insecure, outright terrifying experience for many people, knowing that the insurance company might pull the rug out from under you at any time and pull their acceptance of your defense. If coverage is ultimately denied, not only is there no coverage for defense of the claims, but there is no indemnity coverage for any judgment against you. Once coverage is denied, you are on your own.

A Defense Under a Reservation of Rights Can Be Damaging

Being defended under a reservation of rights can actually cause more trouble than an outright denial of coverage. For example, the insurance company gets to choose the law firm that will defend you. That law firm has to provide periodic reports to the insurance company. The defense lawyer chosen for you is legally and ethically required to defend you to the best of his or her ability, but at the end of the day it is the insurer who is paying the bills.

Even more potentially damaging are those situations in which an insurance company reserves the right to seek reimbursement from you from amounts they do spend to represent you in the event that coverage is ultimately disclaimed. Imagine an insurance company withdrawing its defense and then giving you a bill, forcing you to pay for the abruptly withdrawn services of an attorney you never wanted in the first place — it’s mind boggling.

What Should You Do if You Receive a Reservation of Rights Letter?

You do not have to accept the terms outlined in the reservation of rights letter. If you believe there was an error, you can write back to them and ask them to reconsider their position and provide any evidence you have to support your request. You can also just reject the defense under a reservation of rights altogether, although there are pros and cons to doing this which you should discuss with knowledgeable insurance claim attorneys before making any decisions.

If you have received a reservation of rights letter from your insurer, and you would like to discuss your options, call the experienced insurance claims attorneys at Saavedra Goodwin now at (954) 767-6333 or use our convenient online contact form.