What is a "reservation of rights" letter?

A "reservation of rights" letter is an important document sent by an insurer to inform the insured that, while the insurer is providing a defense against a claim, it may later deny coverage based on specific policy provisions or exclusions. This type of letter is often used in situations where the insurer may have concerns about the applicability of coverage for a particular claim, allowing them to maintain the right to deny coverage even as they fulfill their obligation to defend the insured.

This practice helps protect the insurer's interests and ensures that there is a clear understanding of the potential for coverage issues. It is a crucial aspect of the claims process because it allows the insurer to investigate the claim further while also fulfilling its duty to defend the insured until a final determination about coverage can be made.

Other options do not pertain to this definition. For instance, a notification of an increase in premium rates, an invitation to a legal defense program, and a communication confirming policy renewal are unrelated to the specific nuances of coverage and defense outlined in the reservation of rights letter.