You have an insurance claim. You receive a reservation of rights letter from the insurance company.
Why do insurance companies send a reservation of rights letters? What do you need to know if you receive one?
The Haun Mena insurance claim attorneys in Houston explain.
What Are Reservation of Rights Letters?
A reservation of rights letter is correspondence from an insurance company to the insured party, stating that the insurance company may deny a claim later. The letter states that the insurance company reserves its rights regarding the claim, meaning that it may deny the claim in the future.
Is a reservation of rights letter the same thing as a denial?
No. A reservation of rights letter is not the same thing as having an insurance claim denied. A denial says that the insurance company is refusing to pay a claim. A reservation of rights letter says that the insurance company may deny the claim in the future.
Insurance companies send a reservation of rights letters to comply with the law and protect their rights. The insurance company must respond to a claim within a reasonable time. If they fail to respond, they may waive their right to deny coverage. A reservation of rights letter allows them to respond to a claim promptly while preserving their right to ultimately deny coverage.
A reservation of rights may be related to policy or coverage. A policy defense includes things like failing to pay premiums or providing notice of the claim too late. A coverage defense is the argument that the losses are not covered under the terms of the policy.
Make no mistake – insurance companies send a reservation of rights letters for their benefit – not for the benefit of the insured party. If you receive one, it’s a warning sign that the insurance company may deny your claim.
What Should I Do If I Receive a Reservation of Rights Letter?
If you receive a reservation of rights letter, talk to an attorney right away. As an insured party, if you receive a reservation of rights letter, you may have the right to independent counsel. You may have the right to independent legal representation at the insurance company’s expense. An independent attorney can evaluate if that’s the case and what you may need to do to protect your rights.
A reservation of rights letter can create a conflict between the insurance company and the insured party.
For example, the question in the claim may be whether the insured person’s conduct was negligent or intentional. Negligent conduct is covered by the insurance policy; intentional conduct is not covered. If the insurance company represents the insured in their defense, they may steer a verdict towards a determination that the conduct was intentional. That’s the outcome the insurance company is looking for, but the insured now faces a conflict of interest.
In this scenario, having independent legal representation is critical. The insurance company may have to pay for your independent lawyer. Texas uses a case-by-case analysis to determine the right to independent counsel.
See: Northern County Mut. Ins. Co. v. Davalos, 140 S.W.3d 685, 689 (Tex. 2004); Employers Cas. Co. v. Scott Elec. Co., 513 S.W.2d 642, 648 (Tex. Ct. App. 1974); Britt v. Cambridge Mut. Fire Ins. Co., 717 S.W.2d 476, 481 (Tex. Ct. App. 1986).
Reservation of Rights Letters in Texas
When people buy insurance, they have the right to expect the insurance company to pay covered loss or liability. The insurance company should pay the covered amount within a reasonable amount of time.
Texas law requires the insurance companies to pay promptly. Texas Statutes § 541.060 prohibits unfair settlement practices. The law says that the insurance company must affirm or deny coverage of a claim or submit a reservation of rights to a policyholder.
In addition, the Texas Administrative Code Rule § 21.203(10) says that “failing to affirm or deny coverage of a claim to a policyholder within a reasonable time” is an unfair practice. However, the law also says that: “The reasonable submission of a reservation of rights letter by an insurer to a policyholder within a reasonable time is deemed compliance…”
In other words, the insurance company must say yes, no, or maybe. A reservation of rights letter is effectively saying maybe.
If liability is clear, the insurance company must pay. It is also an unfair settlement practice to fail to attempt in good faith to fairly settle a case with clear liability. (See § 542.003(b)(4)).
Texas law allows insurance companies to reserve their rights. The insured should evaluate the reasons given. Because of the potential for conflict of interest, the insured party should immediately consult with independent legal counsel.
Talk to an insurance claim lawyer in Houston
Whether a reservation of rights letter comes in the context of pending litigation or it is simply the insurance company wanting to take more time to investigate, you should talk to a lawyer immediately if you receive a reservation of rights letter. There may be critical steps to take to protect your rights.
Remember, the insurance company is not your representative, and they are not on your side. An independent lawyer can give you a personalized assessment of the situation and advise you on your next steps.
At Haun Mena, we represent parties in residential and commercial insurance claims. We handle complex claims, including those involving reservations of rights letters.
To talk about your case, call or message us for your consultation.