What is a Reservation of Rights (ROR) Letter and How do I Respond?


Your organization obtains insurance to transfer various risks to the insurer and limit your liability exposure. You expect that when something goes wrong that is covered under your policy, the insurance company will be there to take care of it for you. However, when a situation arises in which an insurance claim is filed and there is some uncertainty about coverage, the insurer may send a reservation of rights letter.

What is a Reservation of Rights (ROR) Letter?

A reservation of rights letter is most often used in connection with an insurance claim. Under a typical liability insurance policy, the insurance company has a duty to pay damages for a covered claim and/or defend their client in a lawsuit (based on a covered claim). But what happens when a claim is brought against the insured in which coverage is excluded under the policy? Or what happens if a claim falls into a gray area where an investigation may be required to determine if it is covered or not?

Insurance companies typically use ROR letters to warn policyholders that, although they are defending the policyholder for now, they reserved the right to deny coverage for some or all of the claim at a later date.

The ROR letter might be a form letter, or it might be personalized to the policyholder. These letters usually recite certain facts about the claim, include excerpts of specific language within the policy, and state what the insurer is contending. In essence, what the letter is saying is that, while the insurer is actively investigating a loss and/or addressing issues related to a lawsuit, it has still not determined whether or not the loss is covered. Therefore, the fact that a claim has been opened and the insurer is working to resolve the claim does not constitute an agreement that coverage exists.

Insurance companies contend that a reservation of rights letter is necessary in some cases to properly handle liability claims. The two most practical alternatives would be to immediately deny the claim or to automatically agree to cover it. A ROR letter allows the insurer to address the claim and thoroughly evaluate the loss before it decides whether or not to cover it.

How Should I Respond to a Reservation of Rights Letter?

While an insurance company’s reason for sending a ROR letter may seem valid, it is still a cause for great concern for the policyholder. A reservation of rights letter brings up an inherent conflict of interest between you and your insurer. Here is a common example of why that may be the case.

An insurance company may issue a ROR letter when there are claims of both negligence and intentional actions that caused damage to the plaintiff. Intentional acts are generally excluded from coverage, and an insurance company may not have to pay damages if your conduct is found to be “intentional”. So, how can you put the insurance company in charge of defending you when it stands to gain by you losing the case?

So how do you respond to a reservation of rights letter? First of all, do NOT ignore it. Failure to respond to a ROR letter will be seen as implicitly agreeing with the contentions of the insurer, as well as the acceptance of an attorney hired by the insurer to defend you (as specified in the letter). 

Policyholders need to be vigilant in protecting their rights after receiving a ROR letter. Here are some steps you should take in response to the letter:

  • Review the ROR letter carefully, and thoroughly review the insurance policy for which it applies;
  • Respond to the insurer saying that you disagree with the letter and pledge subsequent follow-up;
  • Consult with your own counsel right away.

Speak with a Skilled Maryland Business Litigation Attorney

If the claim against you is large enough, you cannot ignore the very real possibility that the insurance company will not act in good faith, and that they will use their investigation to look for ways to deny coverage. For this reason, it is important to protect your organization by retaining your own legal counsel.

At the Law Offices of Matthew S Evans, III, we have extensive experience representing organizations with all types of business litigation in Maryland and Washington, DC. We work closely with our clients and aggressively defend their interests during all phases of the litigation process.

For a personalized consultation with one of our attorneys, call our office today at 410-431-2599. You may also send us a message through our online contact form.

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