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📬 '''Reservation of rights letter''' is a formal written notice sent by an [[Definition:Insurance carrier | insurance carrier]] to a [[Definition:Policyholder | policyholder]] acknowledging receipt of a [[Definition:Insurance claim | claim]] while expressly reserving the insurer's right to later deny coverage or limit its obligations based on specific [[Definition:Insurance policy | policy]] provisions, [[Definition:Policy exclusion | exclusions]], or factual issues that remain unresolved. It is one of the most consequential documents in the [[Definition:Claims management | claims handling]] process because it allows the insurer to investigate and even defend the insured without waiving potential coverage defenses.

⚙️ When a claim is reported and initial review reveals potential coverage questions — such as a possible [[Definition:Late notice | late notice]] violation, an applicable exclusion, or uncertainty about whether the event falls within the [[Definition:Policy period | policy period]] — the claims team issues a reservation of rights letter that identifies each specific ground on which coverage may be contested. The letter must be detailed and timely; vague or delayed communications can, depending on the jurisdiction, result in the insurer being [[Definition:Estoppel | estopped]] from raising those defenses later. In [[Definition:Liability insurance | liability]] lines, the insurer often continues to provide a [[Definition:Duty to defend | defense]] under a reservation of rights while simultaneously conducting its [[Definition:Coverage investigation | coverage investigation]], sometimes retaining independent [[Definition:Coverage counsel | coverage counsel]] separate from the defense attorneys appointed for the insured.

⚖️ Both insurers and policyholders have significant stakes in getting this process right. For the carrier, a well-drafted reservation of rights letter preserves every viable coverage argument and demonstrates good faith handling — a critical defense if the insured later alleges [[Definition:Bad faith (insurance) | bad faith]]. For the insured, receiving such a letter signals the need to engage their own [[Definition:Insurance broker | broker]] or legal advisor to evaluate whether the insurer's cited grounds are legitimate and to protect their interests during the investigation. Courts scrutinize these letters carefully, and in some states an insurer that defends under a reservation of rights without offering the insured the option of independent counsel may face adverse consequences. As a result, claims professionals treat the reservation of rights letter as both a legal instrument and a relationship management touchpoint.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Duty to defend]]
* [[Definition:Bad faith (insurance)]]
* [[Definition:Policy exclusion]]
* [[Definition:Coverage denial]]
* [[Definition:Claims management]]
* [[Definition:Estoppel]]
{{Div col end}}

Definition:Reservation of rights letter - Revision history

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