A reservation of rights letter is sent by an insurance provider to the claimant in order to establish that the insurance company can’t entertain their insurance claim under a certain policy. These letters do not necessarily means that an insurance provider is denying the claim of an insured party. Instead, this letter means that the insurance company is investigating a claim, and has the right to deny the claim after thorough investigation. There’s now also guidance from the Supreme Court regarding reservation of rights letters.
Working of The Reservation of Rights Letter
This letter sent by an insurance company to the insured party means that the company has the authority to exercise its rights. This means that the company still holds the power to deny the claim at a later date. Later, if the insurer actually decides to deny the claim, they will attach their reservation of rights letter with all the documents to prove that they warned you of the possible consequences.
Companies sending these letters to their clients can either deny the claim, or they can defend their client against the claim filed against them. In both the cases, extensive investigation is needed by the insurance before taking any decision. The notice an insurance company sends to tell their client that they need to do more investigation is the reservation of rights letter.
This letter means that the insurer might deny the claim, or is looking for more information on the matter before taking any final steps. If they don’t send this letter, it should be considered legally that they waived their rights early on in the claim.
If you’ve received a reservation of rights letter from your insurance company, you should immediately contact them and ask why they might not be able to cover your claim.