Your business has been sued. You submit a claim to your insurer. The insurer does not deny coverage, but instead issues what is known as a reservation of rights letter. What does this mean, and what should you do? (Hint: call your own lawyer.)
Reservation of Rights: What It Means
When an insurer issues a reservation of rights, it has not denied your claim. It has also not definitively accepted your claim. Instead, the insurer has put you on notice that your claim may be denied later.
There can be legitimate reasons for insurers to do this. For example, the complaint may contain a count that is clearly covered by the policy (say a count for negligence – which would almost certainly be covered by a general liability policy) and also contains counts that are not covered.
As a result, the insurer may not know whether it will be obligated to pay until after a judgment has entered. If you are eventually found liable for negligence (the covered count), the insurer will have to pay. However, if you are found liable only for the counts whose claims were not covered by the policy, the insurer will not have to pay – you will.
On a complicated claim, the insurer might need more information about the facts to decide whether a claim is covered; or might want to reserve the right to claim that the facts do not come within the language of the policy.
Whatever the reason, once a reservation of rights letter has been issued your interests and the interests of your insurer are no longer necessarily the same.
Your Right To Use Your Own Lawyer (At The Insurer’s Expense)
The insurer must still pay for your defense, but once it has reserved its rights it can’t require you to use an insurance company appointed lawyer. Under Massachusetts law, you have the right to choose your own lawyer and the insurance company must pay your chosen, independent attorney at the attorney’s standard hourly rate (generally significantly higher than the insurance company’s appointed attorney’s hourly rate). This means you don’t have to choose between paying for your own attorney and accepting an insurance company lawyer.
There are any number of advantages to choosing your own attorney. The most basic is that you can be comfortable knowing your attorney is fully committed to your interests. You will be relieved of any concern that a lawyer who gets a substantial amount of work from an insurer might even be thinking about the fact that certain counts are not covered by your policy.
Also, if coverage under the policy is unclear, your lawyer can argue to the insurer that the claims are covered and that the insurer must waive the reservation. Your lawyer can argue this while the case is ongoing. As a result, (i) you will have a paper trail arguing that the claim should have been covered, and (ii) the insurer will understand that it is looking at another lawsuit if you lose the case and it refuses to pay the judgment.
If the amount in controversy is not large, just demanding your own lawyers may cause the insurer to waive its reservation (to take advantage of the lower rates they pay their attorneys).
Finally, you may also just want to be represented by attorneys with whom you have worked – the attorneys who know you and your business.
What To Do If Your Insurer Issues A Reservation of Rights Letter
After receiving a reservation of rights letter, the first step should always be to call your attorney. If you want to assert your right to have independent attorneys handle your case, your attorney will let the insurer know, and (if there’s an argument to be made), will dispute the insurer’s reservation of rights.
If you do not realize at the beginning of a case that you have the right to choose your own attorney, you still have the right to be represented by your own lawyer. So even if you didn’t call your own attorney when you first received a reservation of rights letter, calling late is better than not at all.
Sassoon Cymrot’s team of independent attorneys includes litigators experienced in helping clients fight reservation of rights cases. We’re here to help resolve any insurance issues that arise for you and your business. If you’ve received a reservation of rights letter, contact us today.