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Risk PuzzleROR letters, also known as reservation of rights letter can often be alarming and may leave you feeling distressed, angered or confused. In this article, we will explain how you should handle ROR letters from Insurance Companies.

A reservation of rights letter doesn’t signify that the insurance claim is not covered; however, it does indicate that there is some problem lurking over your insurance coverage. It implies that your insurer thinks that there might a strong reason to possibly can deny insurance coverage for a certain part of your insurance claim. It may take months for an insurer to know if the insurance coverage actually exists.

In most cases, insurers have to use a defense lawyer in order to file a lawsuit. But, in case the insurer does not reserve any legal rights and asks for a claim only to discover later that questioning accusations are raising insurance coverage issues, he/she may be prevented from raising an insurance coverage defense. At times, the courts might pronounce that an insurer has surrendered their right to deny insurance coverage by its acts. Instead of denying insurance coverage, the insurer would typically prefer sending an ROR letter that states that they will defend the insured in the interim but would not guarantee payment till insurance coverage or the underlying claim is determined.

This ROR letter is quite provoking and typically pushes insurers between the double risk of full acceptance and full denial of a particular insurance coverage. ROR letters offer insurers enough time to examine and assess the claim in order to dig out the facts.  With the help of this discovery period, an insurer may deny overage if their analysis states that the discovered facts do not hold up insurance coverage.

Here are some tips that will help guide you how to deal with ROR letters—

  • Pay no attention to it. Perhaps the insurer is justified in holding back its right of insurance coverage. For instance, perhaps a suit seeks punitive damages and your insurance policy rules them out completely. Or maybe you insurance policy includes them but the state law prohibits insurance coverage on the grounds of public policy.
  • Ask for details: Many insurers are under the assumption that ROR letters can be written in an indistinct style as it provides the insurer with further options. If a vaguely written ROR letter is sent to you, do not step back from retaliating. You should always ask for a ROR letter that precisely explains the policy provisions, policy language, chapters and verse.
  • Ask for a declaratory judgement action: This step is quite effective in resolving the insurance coverage issues. If you and your attorney are confident that the insurance coverage exists, you should certainly ask for a declaratory judgement. Most of the time, the idea of spending a huge amount of legal fees for handling a declaratory judgement instigates the insurer to reassess its position of insurance coverage.
  • Hire a lawyer of your choice: If the insurer holds back its rights, you may hire an attorney of your choice at the expense of the insurer. If your insurer appoints the lawyer and also reserves rights, it will certainly create a strong clash of interest. Majority of courts allow the insured to hire the lawyer of their choice while the insurer reserves rights.
  • Take legal action against the insurer:  If you think that the insurer has harassed you baselessly, you can take legal action against the insurer for breach of contract. But before suing the insurer, consult your lawyer to determine that the case is strong enough.

Reservation-of-rights letter is an indication of a probable gap in insurance coverage.  One should not panic when receiving an ROR letter. Rather it should be used for analyzing the current status of their insurance policy as well as risk-management programs.

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Girija Shaffer

Girija Shaffer , CEO & Founder of Auspice Riskhas developed a full suite of customized risk management services offered nationally to Risk Managers, Insurance Program Managers, Brokers & Agents. Recognized for her ability to increase customer retention rates, increasing business development opportunities and providing outstanding customer service.

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