Reservation of Rights
The legal concept that allows insurance carriers to provide a defense but deny payment for judgments
Reservation of Rights terms are not spelled out in the policy, but this legal concept is borrowed from contract law.
This concept becomes important when an insurance company is unsure whether there is coverage or not.
There are certain claims where facts are confusing that it would be difficult to determine whether coverage exists.
For example, your policy excludes coverage if the loss can be covered under the workers compensation statutes of your state.
To determine whether worker compensation coverage applies, the accident must have occurred arising out of the performance of an activity that is within the scope of employment.
Many times this can become hard to determine, so it will be left to a jury to decide.
When there are questions for a jury that can bind or exclude coverage, the insurance carrier can choose to protect their client (the insured) in litigation process and issue a Reservation of Rights to exclude coverage for the judgment.
This means that if the jury determines that the accident happened within the scope of employment (excluding coverage from the auto policy), then the insurance company could pay for the legal defense.
They can however deny any payments for damages or judgments if the insured is found responsible because he was working (meaning that workers compensation would apply).
Even if there is no coverage, the cost for the legal defense paid by carrier will not be reimbursed; they have chosen to provide the defense by their own free will, so at least you can get your attorney paid.
This is the type of claim where you must be put on notice about the insurance companies intentions!
They will send you a letter explaining the reservation of rights language. However, by the time this concept comes up, an attorney probably is already representing you (hopefully). If not, you need to secure one.
Click below for an explanation insurance coverages and terms:
Automobile Liability Insurance or Liability Page 1
Automobile Liability Insurance or Liability Page 2
Automobile Medical Payments or Personal Injury Protection (PIP) Page 1
Automobile Medical Payments or Personal Injury Protection (PIP) Page 2
Collision Coverage (Protection Against Loss to the Auto) Page 1
Collision Coverage (Protection Against Loss to the Auto) Page 2
Comprehensive Coverage (Protection Against Loss to the Auto) Page 1
Comprehensive Coverage (Protection Against Loss to the Auto) Page 2
Under or Uninsured Motorist Property Damage (UMPD) Page 1
Under or Uninsured Motorist Property Damage (UMPD) Page 2
Under or Uninsured Motorist Bodily Injury (UMBI)
Rental Reimbursement or Loss of Use Coverage Page 1
Rental Reimbursement or Loss of Use Coverage Page 2
Restoration Coverage
Towing and/or Road Assistance Coverage (Emergency Packages)
Insurance Clauses and Terms
Overview
Actual Cash Value or ACV
Additional Insurance Clause
Cancellation of Coverage Clause
Choice of Law Clause
Forum Selection Clause
Duty to Cooperate Clause
Duty to Report Losses Clause
Financial Responsibility Clause
Insurable Interest Concept
Interpretation of the Policy Concept
Mandatory Arbitration Clause
Mitigation of Damages Clause
Non Duplication of Benefits Clause
Proof of Loss Clause
Promissory Estoppel Concept
Reservation of Rights Concept
Reasonable and Necessary Clause
Right of Appraisal Clause
Right of Settlement Clause
Rights of Counsel Concept
Subrogation of Rights Clause Part I
Subrogation of Rights Clause Part II
Statute of Limitations Concept
Replacement Cost Value
Restoration Coverage
Transfer of Benefits Clause
