What does the term, ‘reservation of rights letter’ mean?
If a person is sued, the legal complaint that is filed against that person would contain various different claims. Some of the claims might be covered by the liability insurance and some of them might not be covered. The insurance company is legally bound to provide a defense to the policyholder if the claims are covered by the policy. However, the insurance company would not be obligated to pay the damages or losses for the claims that are not covered by the policy. When the insurance company proceeds to handle the claim of the policyholder, the insurance company might exclude certain losses or damages as not covered by the policy. In such a circumstance, the insurance company would issue a ‘reservation of rights letter’ to the policyholder. Through such a notice, the insurance company would preserve or reserve its right to deny any coverage at a later date. To cite an example liability policies would not provide cover for damages or losses that are intentionally caused by the policyh
