Reservation of Rights Letter – Definition

Cite this article as:"Reservation of Rights Letter – Definition," in The Business Professor, updated September 10, 2019, last accessed October 20, 2020, https://thebusinessprofessor.com/lesson/reservation-of-rights-letter-definition/.

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Reservation Of Rights Letter Definition

A reservation of rights letter refers to a notice issued by an insurer to an insured which states that a/some claims might not be covered by the policy.  When issued by an insurer, a reservation of rights letter outlines some claims that might be denied coverage under the policy, as well as reasons why they are so.

A reservation of rights does not indicate that a claim is being denied, rather, it is a notice that the insurance company would investigate a claim before making its decision as to whether to deny cover it.

A Little More on What is a Reservation Of Rights Letter

A reservation of rights letter does not outrightly mean that an insurer would deny a claim but at the end of the day, the insurer may deny the claim based on the findings and investigations. Insurance companies issue reservation of rights letters to policyholders as a notice that the company would not provide coverage for a claim until it has been investigated. When an insurer receives a notice of claims, he might need some time to have a proper knowledge of what really transpired, hence a reservation of rights letter is issued.

Once received, this letter tells a policyholder that the claim may be denied. These letters are often issued when questions arose from a claim made by an insured, or there is contradiction in the claim.

When an insurer fails to perform his obligations contained in the terms of an insurance policy without any concrete reason, it is termed waiver of rights. To avoid being accused of waiver of rights, insurers send reservation of rights letters to insured to notify them that they are denied coverage for a claim pending the time investigation on the claim is concluded. Once an insured party receives this letter, it is necessary to make enquiries as to why the claims cannot be covered. Insurers who reserve their rights are still required to reply lawsuits connected with a claim, even if the investigation is ongoing.

A reservation of rights letter contain the following information;

  • Specifics of the claim made by an insured party.
  • The type of policy the policyholder has.
  • The exact claim laid against such a policy.
  • Information that the claim would be investigated or that investigation is in process.

The insured party who is issued a reservation of rights letter can seek the services of an attorney if not satisfied with the position of the insurer.

References for “Reservation Of Rights Letter” 

https://www.investopedia.com/terms/r/reservation-rights-letter.asp

https://en.wikipedia.org/wiki/Reservation_of_rights

https://www.irmi.com/term/insurance-definitions/reservation-of-rights

https://law.freeadvice.com › … › Insurance Law › Insurance Law Basics › ARTICLE

https://consumer.findlaw.com/insurance/what-is-a-reservation-of-rights-letter.html

 

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