Reservation of Rights

A reservation of rights letter means the carrier will defend you while preserving its right to deny coverage later. Carriers send them because defending without reserving can waive coverage defenses the carrier knew about.

The letter creates a conflict of interest, because defense counsel appointed by the carrier is being paid by a party whose interests have diverged from yours: how a case is defended can steer a jury toward a covered or an uncovered theory. A number of states respond by giving the insured a right to independent counsel at the carrier expense once a genuine conflict exists, subject to rate limits. In senior care the recurring triggers are allegations of intentional conduct, abuse where a sublimit or exclusion applies, punitive damages, communicable disease exclusions, and claims potentially outside the retroactive date. Respond in writing, ask which specific provisions are reserved on, note what is not reserved on, and have coverage counsel separate from defense counsel read it on any claim of size.