Reservation of rights
A reservation of rights, in American legal practice, is a statement that one is intentionally retaining his full legal rights to warn others of those rights. The notice avoids later claims that one waived legal rights that were held under a contract, copyright law, or any other applicable law.
The term “all rights reserved" is used in connection with copyright law. The term "reservation of rights" (particularly a "reservation of rights letter”) is often used in connection with insurance claims. The insurance company issues a reservation of rights letter stating that it may deny coverage for some or all of the claim even while the company is investigating the claim or beginning to treat the claim as if it were covered.[1] If the insurance company later decides to deny coverage, it cites the original reservation of rights as the warning that it might do so.
An insurer’s reservation of rights is an important legal step, particularly in the context of liability insurance. The insurer may provide a defense to the insured, seemingly protecting the insured from the serious liabilities that may result from a civil suit. The liability insurer is alerting the insured defendant that insurance may ultimately not cover the resulting liability, or a portion of the liability.[2]
References
- ↑ Glossary of Insurance Management Terms (9th ed.). International Risk Management Institute. 2004. p. 192. ISBN 978-1-886813-46-5.
An insurer's notification to an insured that coverage for a claim may not apply. Such notification allows an insurer to investigate(or even defend) a claim to determine if coverage applies (in whole or in part) without waiving its rights to later deny coverage based on information revealed by the investigation.
- ↑ "Penn-America Ins Co. v. Sanchez". Central Analysis Bureau, Inc. Retrieved 2010-05-01.
An insured is entitled to know early in the litigation process whether the insurer intends to honor [its] duty [to defend] in order that the insured may take steps to defend himself. If in fact the insurer undertakes that defense the insured may reasonably rely upon the nonexistence of policy defenses. To hold otherwise would allow the insurer to conduct the defense of the action without the knowledge of the insured that a conflict of interest exists between itself and the insurer. The conflict is that the insurer retains a policy defense which would relieve the insurer of all liability while simultaneously depriving the insured of the right to conduct his own defense. It is the reliance of the insured upon the insurer's handling of the defense and the subsequent prejudice which gives rise to an estoppel in the first instance against the insurer from raising policy defenses.