What is Reservation of Rights?
A formal notice from an insurance company informing the policyholder that while they will investigate or defend a claim, they reserve the right to deny coverage or limit their obligations later.
Understanding Reservation of Rights
When an insurer issues a reservation of rights letter, it means there are questions about whether the policy covers the claim. The insurer continues handling the claim but warns that they may later determine the claim is not covered. This protects the insurer from waiving coverage defenses while still fulfilling their duty to defend.
Examples
- 1Insurer defending a lawsuit but reserving right to deny indemnity coverage
- 2Auto insurer investigating claim while questioning whether driver was authorized
- 3Homeowner insurer reserving rights on a liability claim involving intentional conduct
Related Terms
Coverage Denial
When an insurance company refuses to pay a claim, asserting that the loss is not covered under the policy terms or that the policy was not in effect.
Bad Faith Insurance
When an insurance company unreasonably denies, delays, or underpays a valid claim, or fails to properly investigate or defend its insured.
Policy Limits
The maximum amount an insurance company will pay for a covered claim under an insurance policy.
Insurance Bad Faith
An insurance company's unreasonable denial, delay, or underpayment of a legitimate insurance claim in violation of its duty of good faith and fair dealing.
First-Party Claim
An insurance claim filed by a policyholder against their own insurance company for losses covered under their policy.
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