Reservation of Rights (“ROR”) letters are used throughout the insurance industry to provide notice to the insured that the claim, or portions of the claim, may not be covered. A common misconception is that ROR letters are flat denials of coverage, which is not their intended purpose. ROR letters are instrumental in alerting you to policy exclusions or other terms and conditions of the policy that may limit indemnification or further limit coverage of the claims alleged against you.
By reserving rights as to coverage, under most traditional duty to defend policies, carriers would typically provide a defense to the entirety of the allegations, covered and not covered, so long as any portion of the claim would be covered. Some ROR letters are the first notice that an insurance company may seek a declaratory judgment to conclusively determine the duties under the policy. Other times, the ROR provides notice that if damages are awarded for an uncovered claim or damage, the policy would not cover that loss.
Defense counsel engaged by the insurer to defend an insured against the allegations in the complaint should not address coverage issues. If you have a concern about coverage or issues raised in a ROR letter, we recommend discussing the matter with the insurance representative and/or engaging your own personal lawyer to counsel you on the coverage issues.