Beyond The Template: Write An Effective Reservation Of Rights Now And Avoid Trouble Later

When an insurer is uncertain if its policy covers the liability alleged against an insured, a reservation of rights letter allows the insurer to protect its right to deny payment for the insured’s liability.

Many of us believe we know how to write an effective reservation of rights letter (thank you very much!). We may even have a handy template allowing us to efficiently draft a reservation of rights.

Recently, however, there have been cases and commentary about insurers losing coverage defenses because of shortcomings in their reservation of rights letters. How can you avoid this fate and comply with the most important requirements of reservation of rights letters? Here are some suggestions.

State the obvious. Using the words “reservation of rights” aids the letter’s purpose. As its name implies, a reservation of rights protects, or reserves, the insurer’s right to deny coverage for the insured’s liability.