Decoding the ‘Reservation of Rights’ Letter: What It Means for Your Claim
The Letter That Changes Everything
In the confusing aftermath of a serious accident, you will receive a flood of mail: medical bills, explanations of benefits, and communications from insurance companies. One particular letter, however, demands your immediate attention. It may look like a standard, formal piece of correspondence, but its contents can signal a major challenge ahead for your personal injury claim. This document is called a “Reservation of Rights” letter.
Receiving a Reservation of Rights letter is a clear indication that the insurance company is investigating your claim while simultaneously looking for a reason to deny it. It is not a denial in itself, but it is a serious red flag. For victims of catastrophic accidents, such as those involving commercial trucks or leading to traumatic brain injuries, this letter is a formal warning that the insurer is building a case against paying the full and fair value of your claim.
Understanding what this letter means and, more importantly, what to do about it, is crucial. This article will break down the legal jargon, explain the insurance company’s strategy, and outline the steps you must take to protect your rights.
What is a Reservation of Rights Letter?
A Reservation of Rights (ROR) letter is a unilateral notice sent by an insurance company to a policyholder (or a third-party claimant) that states the insurer will proceed with investigating an accident claim, but it reserves the right to deny coverage at a later date.
In essence, the insurance company is saying: “We will start the process, and we might even defend our policyholder in a lawsuit against you, but we are not promising to pay for anything in the end. We believe there may be a reason—a ‘coverage defense’—that allows us to walk away from this claim, and we are investigating that possibility.”
This letter allows the insurer to have it both ways. They can fulfill their initial duty to investigate without waiving (giving up) their right to later deny the claim based on a policy exclusion or other issue they discover during that investigation.
Why Do Insurers Send ROR Letters?
Insurance companies send ROR letters to protect themselves from potential legal claims of bad faith or estoppel.
- Avoiding Bad Faith: If an insurer knows there’s a potential reason to deny a claim but investigates or defends the case without telling the policyholder, they could later be sued for acting in bad faith. The ROR letter is their attempt to be transparent about the potential conflict.
- Preventing Estoppel: “Estoppel” is a legal principle that prevents someone from arguing something contrary to a claim or position they have previously taken. If an insurer simply started paying for a defense without an ROR, a court might later rule that their actions implied that coverage was guaranteed, “estopping” them from denying it later.
While the letter is a tool for the insurer’s legal protection, for you, the victim, it is an alarm bell. It means the company has already identified what it believes is a valid reason to not pay your claim.
Common Triggers for a Reservation of Rights Letter
An ROR letter isn’t sent for every claim. It is typically triggered when the circumstances of the accident raise questions about whether the incident is covered under the insurance policy. Common reasons include:
- Questions of Intent: Standard liability policies cover negligence (accidents), not intentional acts. If there is any evidence of road rage or a deliberate act that caused the crash, the insurer will issue an ROR.
- Liability Disputes: While common in many cases, if there is a significant dispute over who was at fault in a complex truck accident, the insurer may send an ROR while they investigate the policyholder’s potential liability.
- Use of Vehicle Exclusions: A personal auto policy may not cover accidents that happen while the vehicle is being used for business purposes, such as ridesharing or food delivery, unless there is a special endorsement. If the insurer suspects this, they will reserve their rights.
- Unlisted Drivers: If the at-fault driver was not a listed driver on the policy, the insurer will investigate whether they had permission to use the vehicle and whether any policy exclusions apply.
- Failure to Cooperate: If the insurance company’s own client (the at-fault party) is not cooperating with their investigation, the insurer may send an ROR letter to them, which can also impact your third-party claim.
- Late Notice of the Accident: Policies require that accidents be reported in a timely manner. If the policyholder waited weeks or months to report the incident, the insurer may argue that the delay prejudiced their ability to investigate, and they will issue an ROR.
What You Must Do After Receiving an ROR Letter
Receiving a Reservation of Rights letter is a clear signal that you are no longer dealing with a straightforward administrative process. You are now in a potential legal dispute with a well-funded corporation. Here’s your action plan:
- Do Not Ignore It: This is the most critical mistake you can make. The letter is a legal document with serious implications. Read it carefully.
- Identify the Reason: The letter should specify the reason(s) why the insurer is reserving its rights. It will typically cite specific sections of the insurance policy. Understanding what the insurer is questioning is the first step in formulating a response.
- Preserve All Documentation: Keep the ROR letter and its envelope in a safe place. Continue to document every interaction you have with the insurance company.
- Consult with an Experienced Personal Injury Attorney Immediately: This is not a situation you can or should handle on your own. An attorney who specializes in complex insurance litigation can:
- Analyze the Letter and Policy: They will decode the legal jargon and the policy provisions the insurer is relying on to understand the strength of the company’s position.
- Craft a Response: Your attorney can draft a formal response to the ROR letter, challenging the insurer’s position and asserting your right to coverage.
- Conduct an Independent Investigation: They will not rely on the insurance company’s biased investigation. Your legal team will gather its own evidence, witness statements, and expert opinions to counter the insurer’s potential reasons for denial.
- Build a Bad Faith Case: The ROR letter is often the first step in an insurer’s path to an unreasonable denial. By engaging an attorney early, you begin building a record to support a potential bad faith claim if the insurer ultimately denies your legitimate claim without a reasonable basis.
Final Takeaway: A Reservation of Rights is a Call to Action
Think of a Reservation of Rights letter as a strategic move in a high-stakes chess match. The insurance company has just put you on notice of its intended line of attack. It is not a checkmate, but it requires a powerful and immediate countermove.
Ignoring the letter or trying to argue with the adjuster on your own will put you at a severe disadvantage. The most powerful move you can make is to bring in your own expert—a legal strategist who understands the game and can fight to protect your interests. Your focus should be on recovering from your injuries, not on deciphering complex insurance policies. If you’ve received an ROR letter, the time for waiting is over. Call Flanagan Law now at 720-928-9178 for your free, no-obligation consultation.
Sources & Further Reading
- Allstate Ins. Co. v. Huizar, 52 P.3d 816 (Colo. 2002). A key Colorado Supreme Court case discussing an insurer’s duty to its insured and the implications of defending under a reservation of rights.
- International Risk Management Institute (IRMI). Reservation of Rights Letter. A leading insurance industry resource defining the purpose and legal necessity of ROR letters.
- Appleman on Insurance Law, 2d. Vol. 10, § 67.24. Reservation of Rights. A comprehensive legal treatise that provides an in-depth analysis of the law surrounding reservation of rights across various jurisdictions.
Frequently Asked Questions
1. Does a reservation of rights letter mean my claim will definitely be denied? Not necessarily. It means there is a significant risk of denial. The insurance company is conducting its investigation, and the outcome is not yet determined. However, it is a clear sign that you need to be prepared for a fight and should seek legal counsel immediately.
2. Who receives the reservation of rights letter? The letter is typically sent to the policyholder (the person who was at-fault for the accident). However, as the injured third-party claimant, you or your attorney may also be sent a copy, or its existence may be disclosed during the claims process. Its issuance directly impacts your ability to recover compensation.
3. How is a reservation of rights letter different from a denial letter? A reservation of rights letter is a provisional statement. The insurer is still investigating and has not made a final decision. A denial letter is a final decision by the insurer stating that they will not pay the claim and explaining the reasons why. An ROR is a warning; a denial is the final outcome (which can still be challenged).
4. Can I still negotiate a settlement if there is an ROR letter? Yes. In fact, the existence of an ROR can sometimes be used as leverage in settlement negotiations. The uncertainty of a potential coverage denial can put pressure on the policyholder to settle within policy limits. Your attorney can navigate these complex negotiations. Contact us online to discuss your case and learn how we can help you.
5. If the claim is ultimately denied after an ROR, what are my options? If the at-fault party’s insurer denies the claim, you can still pursue a lawsuit directly against the at-fault individual. If you have Uninsured/Underinsured Motorist (UIM) coverage on your own policy, you may be able to make a claim with your own insurer. If the denial by the insurance company was unreasonable, your attorney may also be able to pursue a separate lawsuit against them for insurance bad faith.
