After submitting a claim to your business insurance company, the insurer may send you a reservation of rights (ROR) letter. While an ROR letter is not a denial, it is a warning sign. It indicates the insurance company is investigating the claim and reserving its right to later deny all or part of the claim. If you receive an ROR letter, it is important to understand its implications and take appropriate action to protect your rights.
What is an ROR letter?
An ROR letter is a formal notice from an insurance company stating that it is investigating an insurance claim and may ultimately deny coverage for some or all claims, based on the results of the investigation. The letter allows the insurer to reserve its rights to later deny all or part of the claim, since failing to send an ROR letter can be considered a waiving of these rights.
While the insurer is investigating a liability claim, such as a lawsuit against you, it will typically begin to defend the claim on your behalf by hiring an attorney and responding to the lawsuit. Generally, an insurer’s duty to defend a liability claim is broader than its duty to indemnify. Therefore, the insurer may cover the cost of defending your claim in court but later refuse to pay for any settlements or judgments against you (if the defense is unsuccessful). Or the insurer may even withdraw its defense – leaving you to pay out of pocket – if the company determines in its investigation that it does not owe you a duty to defend based on the circumstances of the case and the terms of your policy.
If your insurer undertakes your defense without issuing you an appropriate ROR letter, the insurer may be precluded from raising any policy defense of which it was on notice at the time it assumed the defense.
Content and Timing of an ROR Letter
An ROR letter should specify the reasons for potential denial of coverage, based on the facts of the claim and terms of the policy. It must inform the insured in detail of all potential defenses to coverage the insurer has developed in its preliminary analysis of the claim or lawsuit.1 The letter should point to the policy provisions that may result in noncoverage. For instance, the insurer may indicate that there is a question about whether the claim fell outside the policy’s coverage period or whether it fell under a particular policy exclusion. If any potential defenses known to the insurer are omitted from the letter, they may be waived.2 When an ROR letter lacks sufficient specificity, a court may deem it insufficient to contest coverage. For instance, the Fourth Circuit found that three ROR letters were inadequate to provide a basis for a coverage denial because they referred generally to certain policy exclusions without explaining why coverage might be unavailable under the particular policy provisions.3
An ROR letter should be sent as soon as the insurer recognizes a coverage question, so as to expediently put the insured on notice that coverage may be denied.
What To Do if You Receive an ROR Letter
If you receive an ROR letter, don’t file it away and ignore it. Carefully read the letter as well as your policy. Retain all documentation and keep a record of your communications with the insurance company. Consider contacting an experienced insurance attorney, particularly if large dollar amounts are at stake. Your attorney can analyze the ROR letter and your policy and advise you as to whether the insurer’s reservations are valid. An insurance attorney can also help clarify or begin negotiating coverage positions at an early stage while helping ensure that you do not make any statements to the insurance company that may weaken your position.
If you are in receipt of an ROR letter or you are involved in a dispute with your business insurance company, contact us. We have the expertise, experience and tenacity to make insurance companies keep their promises to you and your business.
1 Associated Indem. Corp. v. Wachsmith, 2 Wash. 2d 679, 99 P.2d 420, 425-26 (1940). See generally 14 Couch on Insurance 2d §51.88 (1982)
2 Intel Corp. v. Hartford Accident & Indem. Co., 952 F.2d 1551 (9th Cir. 1991)
3 In Stoneledge at Lake Keowee Owners’ Assoc., Inc. v. Cincinnati Ins. Co., 2022 WL 17592121 (4th Cir. Dec. 13, 2022)
