What is a Reservation of Rights letter?

Business owners may get sued for a variety of reasons. Responsible business owners will typically buy insurance to protect themselves and their business from claims filed against them. Under a standard liability insurance policy, the insurer is obligated to defend you by hiring you an attorney and pay out damages as needed, assuming the policy covers your claim.

When a business owner first finds out about a potential claim, they may notify their insurer and assume that everything will be taken care of. However, this is not always the case.

The insurer may send a Reservation of Rights letter, essentially stating that it has the right to change its mind about defending you or paying your claim once it has completed its investigation of your claim. For example, the insurer may determine that you breached the terms of your insurance contract and, therefore, refuse to cover your claim.

If your insurer sends a ROR letter, that may mean that there is a significant conflict of interest between you and your insurer. If this is the case, you have the right to hire an attorney instead of allowing the attorney hired by your insurer to represent you. You and your attorney should determine if the letter was sent in a timely fashion and that all facts included in the letter are accurate.

Getting sued can be stressful, especially if you are unsure if your insurer is going to protect you. If you receive a ROR letter, it is important that you do not ignore it.


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