What is a reservation of rights letter?

A reservation of rights letter is a formal communication sent by an insurance company to a policyholder when there is uncertainty about whether or not the insurer will provide coverage for a particular claim under the policy. The letter typically outlines the specific reasons why the insurer believes coverage may be in question, and notifies the policyholder that the insurer is reserving its rights to deny coverage or defend the claim in the future.

The purpose of a reservation of rights letter is to protect the insurer's interests while also keeping the policyholder informed of the potential risks involved in the claim. By sending the letter, the insurer is able to investigate the claim further and gather additional information without waiving its right to deny coverage at a later date.

It is important for the policyholder to carefully review the reservation of rights letter and seek legal counsel if necessary to understand their rights and obligations under the policy. Failure to respond or take appropriate action after receiving a reservation of rights letter could result in a denial of coverage or other adverse consequences for the policyholder.