What is a Reservation of Rights Letter?
A Reservation of Rights letter (ROR) is issued on behalf of the insurance carrier to the insured when there are potential complications around coverage for a claim. Typically it means that the insurance company has reviewed your claim and has identified that coverage is available for at least some elements of the claim. That said, depending on the information uncovered by the investigation, there may be some elements of the claim that are deemed uncovered. The purpose of an ROR is to outline these issues so that you have a reasonable understanding of what your coverage will support.
Is an ROR cause for panic?
No, Reservation of Rights letters are something you should expect to receive when filing an expensive or complex claim. Issuing an ROR does not necessarily mean that the insurance carrier is looking for reasons to deny a claim. Often, an ROR is a simple matter of due diligence on part of the adjuster, especially in situations where the facts are not yet known. That said, there may be situations where the carrier is interpreting the facts of the policy language in a way that is unfavorable, so it’s important to work with your broker and potentially coverage counsel to review the carrier’s letter and determine a response.
How should I respond?
Every policy and claim will be different which results in every Reservation of Rights Letter being unique. Your organization should work with your broker and potentially coverage counsel to review the letter and determine any next steps. Under some circumstances, there is no need to respond. In other situations, it may be helpful to provide additional facts or context to the adjuster in order to clarify the situation. In other situations, though more rare, it may be necessary to draft a formal response disputing elements of the carriers letter or providing your own interpretation of the facts or policy language.
What happens next?
Typically, the claim and any related investigations will move forward. During this time, the insurer is usually still responsible for covering costs associated with the defense and investigation of the claim. The carrier will usually continue to be responsible for these costs until its limits are exhausted or it is definitively established that there is no coverage for a claim.
How likely is it that an ROR turns into a denial of coverage?
Not likely, but if you receive an ROR you should discuss with your insurance advisors to understand the possible outcomes.
