In the context of third-party liability, the primary insurer who defends the insured without reserving rights may be estopped from later relying upon limiting or exclusionary language in the policy known to potentially apply at the time the defense is undertaken.
An effective reservation of rights letter includes a description of the policy provisions that may serve to limit or preclude coverage, along with a description of the known facts that potentially implicate those provisions. It alerts the insured to the portion(s) of a claim that may not be covered, so the insured can then decide whether and how to take additional steps to protect its interests. The specific requirements of what should be included within the reservation of rights varies by jurisdiction. Generally, however, the bare cut-and-paste identification of policy provisions and boilerplate language is insufficient. See SavaSeniorCare, LLC v. Starr Indem. & Liab. Co., 491 F. Supp. 3d 1275, 1284 (N.D. Ga. 2020); Harleysville Group Ins. v. Heritage Communities, Inc., 803 S.E.2d 288, 296 (S.C. 2017); Essex Ins. Co. v. RHO Chem. Co., Inc., 145 F. Supp. 3d 780, 791 (N.D. Ill. 2015); Selective Way Ins. Co. v. MAK Servs., Inc., 2020 PA Super 103, 232 A.3d 762, 770 (Pa. 2020).
After issuing the initial reservation of rights, an updated letter may be necessary during the pendency of the underlying litigation to address any substantive changes to the facts or circumstances impacting coverage. This is particularly an issue as the underlying case proceeds toward trial, where the insured will need to seek an allocated verdict to differentiate between covered and not covered damages. See, e.g., Heritage Communities, 803 S.E.2d at 297-98, 299.
Nancy Cook is a partner in the Orlando, Florida, office of Weinberg Wheeler law firm and represents insurers in coverage litigation.
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