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

by Christopher L. Strohbehn on Sep. 05, 2023

Lawsuit & Dispute Business  Insurance Accident & Injury 

Summary: When you receive a reservation of rights letter, sometimes the actual message of the insurance company gets lost in the policy language. This article helps clarify what that message the recipient should take from that reservation of rights letter.

Many businesses and individual insurance policyholders are targets of civil claims each year for a variety of reasons.  Policyholders are often faced with allegations of negligence or intentional acts, mistakes made by employees, defective work products or other sorts of property damage.   In those cases, if that business or individual has insurance coverage, then they can tender that claim to its insurance company to provide a defense and indemnification. 

However, insurance companies will often agree to defend claims only temporarily pending an investigation.   In those cases, the insurance companies will send their insureds letters indicating that while they are providing a defense, they are doing so subject to a “Reservation of Rights.’

What is a Reservation of Rights Letter?

In the event you receive a Reservation of Rights letter, one thing is certain, there is a risk you may not be covered for something that could be significant financially to you or your business.  Therefore, you should reach out to a lawyer experienced in insurance coverage disputes to discuss your potential risks and options.

In the state of Wisconsin, insurance companies will send a Reservation of Rights letter to formally notify the insured that not every claim alleged against the insured will be subject to coverage or indemnification by the insurance company.   Receiving such a letter should raise red flags for the policyholder. 

While receiving a Reservation of Rights letter can be concerning for policyholders, especially if they are target of a claim or lawsuit with significant exposure, it is critical to discuss the claim an experienced attorney who can help policyholders understand the potential impact on their coverage and rights.

What if You are Being Defended Pursuant to a Reservation of Right?

In the event you or your business are in litigation and being represented by counsel appointed by the insurance company, it is important to speak with an attorney to understand your options. Many times, an insurance company will take the Reservation of Rights a step further and hire counsel to defend the insurance company against having to cover or indemnify the policyholder for that claim. Moreover, it is crucial for you as the policyholder to understand that the lawyer hired to defend you by the insurance company will not advocate on your behalf to argue coverage or indemnification for claims the insurance company denies coverage. While fighting on multiple fronts in litigation from a policyholder’s perspective is not ideal, it is often necessary.

In that case, the best decision for your family or business is to reach out to a lawyer to represent your individual interests. You need someone on your side completely. You need someone who has no allegiance to the insurance company to help give you or your business the full sense of risks and exposure facing it in the litigation.   

In the event you or your business finds itself the subject of a claim for damages, and receives a reservation of rights letter from its insurance carrier, then take a moment to consult with a trusted attorney to discuss your risks and potential legal exposure.  You will not regret it.  


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