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The Importance of Specificity in Reservation of Rights Letters

Reservation of rights letters notify policyholders that all or some of their claims may not be covered under their insurance policies. Insurance companies may deny coverage for a variety of reasons including: (1) the provisions of the policy, (2) legal principles, and (3) actions of the policyholder.  To avoid waiving any of their available defenses, insurance companies must carefully prepare reservation of rights letters which communicate their coverage defenses.

The Pennsylvania Superior Court addressed the requirements for an effective reservation of rights in Selective Way Ins. v. MAK Servs., Inc.  There, the Superior Court held that a general reservation of rights letter issued by the insurance company was ineffective. Although Pennsylvania law does not require an insurance company to list every potential defense to coverage, there must be “some level of specificity.” The Court detailed two requirements for an effective reservation of rights letter: (1) it must be submitted in a “timely fashion;” and (2) it must “fairly inform the insured of the insurer’s position.” Lastly, the Court instructed that insurance companies should send multiple reservation or rights letters to policyholders as coverage issues are identified or resolved.

For additional guidance on reservation of rights letters, please contact any member of Horst Krekstein & Runyon’s team.