Don’t Cash that Check Just Yet - What Insurers and Insureds Need to Know About a Reservation of Rights

In recent years, the question of whether an insurer is entitled to recover defense costs from its insured for uncovered claims has garnered a lot of discussion. And, only a handful of courts have addressed the issue, and these courts are split.

According to Carr Maloney attorneys William Carter, Mariana Bravo, and Matthew Berkowitz, when an insured requests coverage, the insurer essentially has three options. It may (a) accept coverage completely and without reservation; (b) disclaim coverage; or (c) accept coverage and provide a defense subject to a reservation of rights.

The attorneys say that the purpose of a reservation of rights is to notify the insured of the insurer’s potential coverage defenses and to permit the insurer to satisfy its duty to defend without forfeiting its right to disclaim, should it later be determined that the claim is not covered under the insurance policy. As part of the reservations of rights process, insurers are reserving their rights to recover defense costs they have expended for claims that ultimately are not covered.

Carter, Bravo and Berkowitz are available for an interview or to write an article on this issue, including: the two approaches the courts have taken and certain differences within each approach; the standard that a court would likely adopt in reviewing this issue for the first time and what that standard means to both insurers and insureds; and guidance to both insureds and insurers on protecting their interests in this vastly unsettled area of the law. [08/04/2010]