It's a peculiar fact that liability insurance is an industry built on standardization of policy forms. And at no time are those forms more important than in the context of a claim. Yet the critical document whose purpose is to explain to policyholders how those forms may apply to their claim — the reservation of rights letter — is anything but standardized. Simply put, reservation of rights letters resemble fingerprints.
This lack of set guidelines for drafting reservation of rights letters means that no matter how much experience a person has doing so, it's still easy to get something wrong. And courts have been penalizing insurers for issuing what they see as inadequate reservation of rights letters. This penalty can be severe: the loss of otherwise applicable coverage defenses.
What makes a letter a “reservation of rights” letter? Is it enough to simply label it a reservation of rights letter? Is it enough to say, sometimes many times over, that the insurer is reserving its rights to deny coverage? In some cases, the answer is no.
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