Define the Reservation of rights

Reservation of rights

An insurer's notification to an insured that coverage for a claim may not apply. Such notification allows an insurer to investigate (or even defend) a claim to determine whether coverage applies (in whole or in part) without waiving its right to later deny coverage based on information revealed by the investigation.

Insurers use a reservation of rights letter because in many claim situations, all the insurer has at the inception of the claim are various unsubstantiated allegations and, at best, a few confirmed facts. In reserving its rights to later deny coverage, the insurer is merely telling the insured of its concerns that the claim, in whole or in part, may not be covered under the policy, pending further investigation.

Although a reservation of rights protects an insurer's interests, it also alerts an insured to the fact that some elements of a claim may not be covered, thereby allowing the insured to take necessary steps to protect its potentially uninsured interests.

reservation of rights

In American legal practice, a Reservation of Rights is a statement that one is intentionally retaining his full legal rights, so as to warn others of those rights. This notice avoids later claims that one waived legal rights that were held under a contract, copyright law, or any other applicable law.

The term “all rights reserved" is used in connection with copyright law. The term "reservation of rights" (particularly a "reservation of rights letter”) is often used in connection with insurance claims. The insurance company issues a Reservation of Rights Letter stating that it may deny coverage for some or all of the claim, even while the company is investigating the claim or beginning to treat the claim as if it were covered.^[1] If the insurance company later decides to deny coverage, it cites the original Reservation of Rights as the warning that it might do so.

An insurer’s reservation of rights is an important legal step, particularly in the context of liability insurance. The insurer may provide a defense to the insured, seemingly protecting the insured from the serious liabilities that may result from a civil suit. But, the liability insurer is alerting the insured defendant that insurance may ultimately not cover the resulting liability, or a portion of the liability.^[2]