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Beware a reservation of rights letter

When you have a valid insurance policy, one of the benefits of the policy is the insurer's duty to defend. In other words, if you are sued for damages, and the policy nominally covers the actions that caused the injury, the insurer has a duty to pay for your legal defense.

In most cases, the insurer will concede their duty to defend and put forth a defense. Sometimes, they may argue your claim is not covered and they have no duty to defend, but will defend under a "reservation of rights." This means they believe that some or all of your claims are not covered under the policy and the "right" they are reserving is the right to deny coverage to your claim at a later time.

If you receive a letter like this, you should pay attention and investigate why they may believe your claim falls outside the coverage of the policy. You may also want to check with your own attorney at this point. Some insurance companies may issue these reservation of right letters as a routine matter, to allow them to later reject coverage, should they come across information during the litigation or while investigating the claim that would support their refusal to pay the claim.

However, if it appears that they have real questions as to the validity of the coverage, you may need your own attorney to fully protect your interests. Because a reservation of rights letter may indicate a split loyalty, where the insurer is working to defend you on the one hand, but on the other hand, looking for grounds to deny coverage, having your own attorney may be necessary to ensure that your case is not compromised by their behavior.

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