Experienced Kansas City Construction Law Firm

What does an insurer mean in claiming ‘reservation of rights’?

On Behalf of | Oct 18, 2014 | Business Litigation, Commercial Real Estate

Risk mitigation is big business. It doesn’t matter if you are a huge corporation or a private individual, there can be situations that could result in you having to face significant financial obligations. To avoid that, we take out insurance policies — contracts that bind a third party to help us in the event of a claim that could result in our suffering a loss.

Of course, insurance companies have their own incentives for mitigating the risk of having to make pay outs. Among the tactics they may use is the sending of a letter that expresses their “reservation of rights” after a claim has been made, but before it commits to approving it for coverage. 

The reason the letters are employed, as many with experience in business litigation know, is to delay. If the claim is approved the company is obligated to pay any settlements or judgments that might arise from the claim. The theory is that by issuing a reservation of rights letter, or several, the company buys time that can be used to investigate or just see how things play out without incurring beneficiary claims of bad faith or failure to defend.

But as a recent article in The National Law Review observed, the validity of such letters depends on the detail of their contents. The item focuses on a Missouri appeals court decision that found that two reservation of rights letters sent by an insurer to a construction firm that had been sued for defective work were lacking under state law.

The court said they failed to make clear why the insurer was holding off on deciding whether to cover the claim. The insurer had eventually denied the claim, but under the ruling that was reversed.

This firm had no role in this particular case, but we find it hard to disagree with the reviewer’s conclusion. As he put it, “Calling a letter a “reservation of rights” does not make it one.” 

Testimonials

“Long & Robinson was in our corner from the beginning through the end, giving great advice and guidance, and working with us to bring our issue to resolution. Would highly recommend for construction representation.”

— Jeff Wasinger, Vice President – Haren Companies

Testimonials

“Burke Robinson and the Long & Robinson law firm were a pleasure to work with and were also excellent in every way. The firm fully supported a contentious claim, providing guidance and insight at every turn. Although it’s challenging for an organization, as the plaintiffs, to maintain a positive feeling throughout a lengthy process, Mr. Robinson and his team continued to offer encouragement with helpful legal analysis and reporting. A critical part of reporting and case management is a detailed review, understanding and strategy for the complex elements of a claim such as ours and Mr. Robinson demonstrated that in abundance. I highly recommend Long & Robinson to any organization that needs the same kind of legal team as we did.”

— Chris Durkin, Director – One Park Place Tower Condominium Association

Testimonials

“Burke has been absolutely amazing to work with. I feel we have a very unique situation that is rather hard to explain and put all of the pieces together. Burke has been amazing at assisting our HOA and addressing all of our questions in a quick and professional manner. If he doesn’t know the answer he finds it and responds quickly. I would recommend Burke to anyone in need of legal services. Our HOA is extremely happy we found him!”

Testimonials

“I was in the construction business for 40 years. In that time I have had the need for legal help a few times. This firm provided expertise and service that was light years beyond others law offices. We COULD NOT have done better. Thank you so much.”

Testimonials

“We looked at many options and selected Long Robinson based on reputation and our interviews. Burke Robinson has proven to be a great choice.”