I received a Reservation of Rights letter from my insurance company recently, should I be concerned?

Absolutely.  This is a huge red flag that you are financially at risk in any insurance related dispute or lawsuit.  The Reservation of Rights letter basically means the insurance company initially intends to defend you according to the terms of the insurance policy.  However, the insurance company is laying the legal groundwork to raise a number of issues which would later relieve part or all of their financial responsibility under the policy as well as their obligation to defend you during any subsequent dispute or lawsuit.

In the insurance industry a Reservation of Rights letter is often sarcastically called a “Rejection Letter” internally at the insurance company.  It may surprise you to learn your insurance company is not in business to provide a good person like you with insurance protection.  They are in business to earn a substantial profit.  The Reservation of Rights letter means the insurance company intends to attempt to shift part or all of the financial liability for the claim from the insurance policy itself to you the policy holder.

It is also important to understand the legal position of the attorneys representing the insurance company.  They actually owe their primary legal allegiance to the policy itself, not you as the insured.  Therefore they are legally bound and financially incentivized to shift blame (and thereby financial responsibility) from the policy to you personally.

Fortunately California law has strict requirements holding insurance companies to high standards.  Their actions may constitute “insurance bad faith” which allows you to seek financial damages.  In addition, California law recognizes the legal conflict inherent with insurance policies and provides policy holders with the legal right to seek their own independent or “Cumis Counsel.”  The Watkins Firm often serves as cumis counsel for many insured defendants in disputes and lawsuits.  Your insurance company is responsible for paying your legal bills for a Cumis Counsel when it is justified by the legal situation at hand.

If I received a Reservation of Rights letter from my insurance company should I be concerned, and what action should I take?

We hope you now understand a bit more about these issues and why it is so important to contact the Watkins Firm for a free consultation when you receive a Reservation of Rights letter in the midst of an insurance-related dispute or lawsuit.  We invite you to review the comments and recommendations of our clients and contact us or call 858-535-1511 for your free consultation today.


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