When a liability claim is tendered, insurers are often required to step in and provide a defense before the full set of facts is available. At the outset of a lawsuit, the allegations may include both covered and uncovered theories of liability, the record may be incomplete, and policy exclusions or conditions may appear relevant but not yet proven. In these situations, the Reservation of Rights letter—commonly referred to as an ROR—is one of the insurer’s most important tools. By issuing an ROR, an insurer can honor its duty to defend while preserving the right to later deny coverage if the facts or law ultimately warrant that position. Without this safeguard, insurers risk waiving defenses or being barred from asserting them later.
The ROR letter serves several critical purposes. First, it preserves coverage defenses by putting the insured on notice of potential issues under the policy, ensuring the insurer retains the ability to raise them at a later stage of the claim. Second, it helps meet legal and regulatory obligations. Courts expect insurers to provide prompt, clear, and specific communication when coverage concerns arise, and the ROR is the standard method for doing so. Finally, it clarifies expectations for the insured. While the insurer provides a defense, the letter underscores that indemnity for every allegation is not guaranteed, and coverage may be limited or denied.
The timing of the ROR is just as important as its content. Insurers should issue the letter as soon as potential coverage issues are identified, rather than waiting for discovery or further developments in the case. Early issuance reduces the risk of waiver or estoppel and demonstrates transparency with the insured.
The content of the letter itself can determine whether it successfully preserves the insurer’s rights. A vague or boilerplate ROR may be treated as insufficient, while a well-drafted one will be specific and tailored to the claim. The most effective RORs cite the precise policy provisions at issue, explain how they may apply to the facts as known, and avoid overstatements or unnecessary commentary. Accuracy and clarity are essential, both to protect the insurer’s rights and to maintain credibility with the insured.
Equally important, the ROR should not be treated as a one-time formality. As a case develops, amended pleadings or newly discovered facts may implicate different policy provisions. In those circumstances, insurers should issue supplemental or updated RORs. Failure to do so—or relying on vague, generic language at the outset—can create significant risk, including waiver of defenses or exposure to arguments that the insurer promised coverage it never intended to provide.
At its core, the Reservation of Rights letter is a balance between fulfilling the duty to defend and protecting the insurer’s contractual rights. It provides transparency to the insured while preserving flexibility for the insurer. When handled carefully, it ensures that both parties understand their position and reduces the likelihood of disputes over coverage at the conclusion of a case.
If you have questions about this article, or about insurance coverage issues in general, contact Natalie Lyon (nlyon@setlifflaw.com) at (804) 377-1275 or Steve Setliff (ssetliff@setlifflaw.com) at (804) 377-1261.
© 2025 Setliff Law, P.C.| View Our Disclaimer | Privacy Policy