Insurance Defense and Coverage
Defense and Indemnity
A reservation of rights is a letter an insurer sends to its policyholder stating that it will provide a defense to a lawsuit while preserving its ability to deny indemnity coverage later. The letter identifies the specific policy provisions, exclusions, or conditions the insurer believes may limit or eliminate coverage, so the insured is on notice that a defense today does not guarantee payment of a judgment tomorrow.
Without a valid reservation, an insurer that funds a defense with knowledge of a coverage problem may be found to have waived the defect or be estopped from asserting it. The letter therefore has to be specific: generic statements that the insurer reserves all rights under the policy and applicable law are routinely held insufficient.
Alternative Names:
ROR Letter, Reservation of Rights Letter
Why it Matters?
The reservation of rights defines the entire posture of the defense. It determines whether the insured may be entitled to independent counsel, whether the insurer can pursue a declaratory judgment action, and whether an excess verdict later exposes the carrier to bad faith. In complex matters with multiple carriers and layered towers, the timing and precision of each reservation often drives allocation and contribution disputes years later.
Frequently Confused with
Related terms
Frequently asked questions
Does a reservation of rights mean my claim is denied?
Can an insurer withdraw its defense after sending a reservation of rights?
Does a reservation of rights entitle the insured to its own attorney?
