A reservation of rights is a way in which an insurer agrees
to defend an insured against the claim or suit while also retaining its ability
to evaluate, or even deny, coverage for some or all of the claims alleged.
Common examples where insurers may issue are reservation of
rights letters include: 1. When there is a policy exclusion; 2. Some of the
damages are not covered by the policy; 3. The damages may exceed the policy
limits; 4. The insured breached the condition of the policy.
Reservations of rights letters typically have a long list of
reasons of why the insurer could deny coverage for the claim. The insurer has
an obligation to notify the insured, its client, that a particular claim may not
be covered. Obviously, receiving a long list of reasons why your insurer may not
cover the claim scares many policyholders since you purchase the insurance to
cover such incidents.
Often, coverage cannot be determined until after an
investigation is conducted. The issuance of a reservation of rights letter
gives the insurer the flexibility to fulfill its obligation under the policy to
defend their client while protecting itself by carrying on an investigation
which could eventually allow it to deny coverage. The letter must explain to the policy order
why the policy, as applied to the facts of the claim, could result in denial of
coverage and should quote the particular policy provision and or language that would
be the basis of the denial.
However, a reservation of rights letter does not necessarily
mean that coverage will be denied. An insurance company is required under North
Carolina law to pay claims in a timely fashion after reasonable investigation. Once
the investigation is completed the insurance company must pay the claim if it
should’ve been covered under the policy.
If you’ve had a claim wrongly denied call Hemmings and Stevens today for a free no obligation consultation.
