As the responsible property owner you are, you obtained liability insurance and have paid your insurance premiums on time. As you’ve held up your end of the bargain, you expect your insurance to have your back when you become the object of a suit or liability claim. However, what do you do when you suddenly receive a reservation of rights letter stating several reasons why they will not cover you due to certain events correlated to your policy? This blog will go over how a reservation of rights letter can affect you and what you should do if you receive one.
Reservation of Rights Letter
According to the terms of your liability insurance policy, your insurer has the legal obligation to defend you during a liability lawsuit. If someone gets injured on your property and files a lawsuit against you to recuperate medical costs, your insurer will mount a legal defense on your behalf in conformity with your homeowner’s policy. However, the insurer’s duty to compensate is narrower than its duty to defend. Due to this, while your insurer can investigate the claim against to search for liability defense, they can also deny your insurance coverage down the road based on the findings of their investigation or the result of the lawsuit.
If your insurer fails to send you a reservation of rights letter sufficiently in advance of the lawsuit, they may relinquish their right to deny you coverage at a later date, having failed to notify you of the possible absence of coverage. For example, since policies likely cover losses due to acts of negligence, a reservation of rights letter sent by your insurer might warn you of an absence of coverage if:
- You fail to stand by the terms of the policy
- The lawsuit reveals that you intentionally harmed someone
How a Reservation of Rights Letter Can Affect You
As a policyholder, a reservation letter of rights can trouble you if your insurer later refuses to cover you on a claim made against you in a lawsuit. If this takes place, and you’re found liable, you may have to be responsible for those damages. If there’s a conflict of interest between you and the insurer, a reservation of rights letter may indicate this conflict before the damage phase of the lawsuit. If that’s the case, it may be imperative to hire a different attorney rather than staying with an insurance company that has divergent interests from yours.
Additionally, although the insurer must supply and pay for the costs of your defense (if the claim involved is covered under your policy), the insurer may attempt to recover their costs by having you sign an agreement that allows that. They could potentially try to recover those costs without an agreement as well.
What Should I Do If I Receive a Reservation of Rights Letter?
If the reservation of rights letter sent by the insurer is a general form with no specifics or details provided about your case, then we recommend contacting the insurer and ask why they believe your claim might not be covered under the policy. This can provide you with information on:
- How likely they are to deny coverage
- The type of defenses they may assert
If your insurance company indicates they will deny your claim, or if they’re not forthcoming, we recommend that you contact an experienced outside insurance dispute attorney for an evaluation of your case. Getting independent counsel in the early stage will be greatly beneficial to you, helping you ensure the most robust defense possible while preventing sharing too much valuable information with the insurer or other lawsuit parties.
Regardless of whether your insurer has acted against you or you need reliable legal representation for any type of insurance dispute, Bonnici Law Group is here to help you obtain your rightful benefits. We hope this blog helped you understand how a reservation of rights letter can affect you and what you should if you receive one. To set up your free consultation, give us a call at (619) 259-5199, or click here.