What happens when an insurance company ‘reserves rights’? p2

Sat Feb 27th, 2016 on     Insurance Claims,    

Insurance companies do not like to give up control if there is a chance they will have to pay a claim. By providing a defense attorney, for example, an insurer can control how the attorney argues the case for the claimant. In most cases, the claimant is grateful for the help — he has no interest in paying the claim, either.

Remember, though, that an insurance company can avoid paying a claim in a couple of ways. Yes, the defense attorney can argue that the policyholder was not responsible for the injury, and the claim has no merit. The defense can also argue that the policyholder was responsible, but the actual event that caused the harm was not covered by the policy — it may be subtle, but the result is the same: The insurance company can avoid paying the claim, but the policyholder is left holding the bag. 

In our last post, we were talking about cases where coverage is in question and the insurance company decides, for one reason or another, that it will defend the claim but will not promise to pay it. The insured will receive a reservation of rights letter informing them of just that. The insurance company, however, must follow specific rules, some governed by Florida statute, for that reservation of rights letter to be valid.

For example, Florida imposes certain deadlines and parameters on the insurer’s communications with the insured about who will control the defense. If the insurer decides to move forward with litigation, Florida law requires that the insurer and the insured agree on the choice — whether the attorney is independent of the insurance company is not an issue in this state.

Policyholders should remember that they do not have to take the insurance company’s word for it that the claim may not be covered. It is possible to challenge an insurer based on what the reservation of rights letter says or does not say.

A court may not look kindly on a letter that fails to explain clearly the reason the claim could be denied. An insurance company cannot just cut and past the policy language into the letter and mail it off. The letter must inform the insured in language that is clear and unambiguous.

Similarly, a court may not appreciate a letter that does not make it clear that coverage is not guaranteed and, of course, that the insurance company may demand to be reimbursed for the attorney’s services. Again, this should all be in clear, unambiguous language.

A policyholder may find it helpful to ask his own attorney to take a look at any questionable correspondence from his insurance company. Moving forward without a firm grasp of what’s going on could prove very costly.


Florida Jurisprudence, Second Edition, February 2016 Update, Insurance via Westlaw

Property Casualty 360, “Reservation of Rights: Harsh Consequences for Getting it Wrong,” Randy J. Maniloff, Dec. 1, 2015

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