The reservation of rights letter
The purpose of this procedure is to help claims adjusters mandated by an insurer in situations where a problem may arise with respect to the insurance coverage provided by the insurer. The procedure provides the framework for the adjuster’s duty to inform the insured of the potential problem in a manner consistent with the adjuster’s legal and ethical obligations. It recommends that a Reservation of Rights Letter be remitted to the insured to ensure that the insured is aware of the insurer’s intentions.
The Reservation of Rights Letter is a letter by which the insurer, through his mandatary, the claims adjuster, notifies the insured or a third party that a more in-depth investigation into the circumstances of the loss is required and that the insurer reserves the right to claim restrictions to, or exclusions from, the policy in order to refuse indemnification of the insured.
In the absence of such a letter, the insurer could be held liable to compensate the insured or the third party. As a result of the insurer’s conduct or even its silence, it would be deemed to have waived its right to invoke an exclusion.