Our carrier sent a reservation of rights letter. What does that mean?

A carrier that defends a claim without reserving its rights can be held to have waived coverage defenses it knew about. So when a complaint contains allegations that may fall outside coverage, the carrier defends and simultaneously puts you on notice that it may not indemnify.

In senior care the recurring triggers are allegations of intentional conduct, allegations of abuse where a sublimit or exclusion applies, punitive damages claims, claims implicating a communicable disease exclusion, and claims potentially outside the retroactive date.

Defense counsel appointed by the carrier now has a client whose interests diverge from the party paying the bills. How the case is defended can influence which theory the jury adopts, and one theory may be covered while another is not. Steering a case toward an uncovered theory would benefit the carrier and harm you.

A number of states address this by giving the insured the right to independent counsel of its own selection at the carrier expense once a genuine conflict arises, subject to rate limitations. Other states apply narrower rules. Whether you have that right, and what it costs, is one of the first questions to ask.

Identify exactly which allegations or which damages the carrier is reserving on, and which policy provisions it cites. A letter reserving generally on all provisions is less informative than one that names the abuse sublimit or the punitive damages exclusion, and you are entitled to ask for specificity.

Note what the carrier is not reserving on, because that is a commitment. And note whether it reserves the right to withdraw from the defense entirely or only to deny indemnity, since those are very different positions.

Respond in writing. Acknowledge the letter, dispute the reservations you disagree with, and request independent counsel if your state provides for it. Silence is sometimes characterized as acceptance.

Have coverage counsel, separate from defense counsel, review the letter on any claim of size. Defense counsel appointed by the carrier is not the right party to advise you about your dispute with that carrier.

And track the allocation question early. If part of the claim is covered and part is not, the allocation of defense costs and any settlement will be negotiated, and the position you take in the first months tends to set the frame for that negotiation.