When an insurance company has a question about whether a policy covers a claim, it sends a letter called a "reservation of rights." The company reserves its rights to deny all or part of a claim if the policy does not cover a loss.
The insurance company sends these letters to the policyholder via certified and return receipt requested mail. The letter is on the company letter head and uses legal language.
The insurance company alerts the insured to a potential problem. The adjuster cautions the policyholder not to construe an investigation of the claim as a guarantee of payment.
The letter states the primary question involving coverage. For example, the adjuster may assert there was no active policy at the time of the loss or that the insured failed to meet contractual obligations such as cooperating with the investigation.
RORs also suggest the insured retain an attorney to protect him from claims against his uninsured or underinsured assets. Some jurisdictions require reimbursement of attorney fees when investigations confirm coverage is available for the claim.
State Insurance Commissioners and legal precedents require that insurance companies alert policyholders about coverage issues within a specified time period. Likewise, these authorities set time limits for how long an insurance company has to deny or accept a claim.