A Reservation of Rights letter from an insurer is a notice that even though the company is proceeding to handle your claim, depending on what happens, certain losses might not be covered by the terms of the policy. Basically by sending such a letter, the insurance company preserves (or reserves) its right to deny coverage at a later date based on the terms of the policy.

For example auto insurance Liability policies do not provide coverage for damages which you cause intentionally. If you injure someone under circumstances where the injury could have been accidental or could have been intentional and the case is going to court than the party suing you will have to prove it was one or the other. In this type of situation your insurance company may write you a Reservation of Rights letter saying it will provide you a defense but it will not pay damages if the court finds you caused the injury intentionally.

If you are sued after a motor vehicle accident, the legal filing may note several different claims, some of which may be covered by your Liability insurance policy and some of which may not be covered. The insurance company is normally obligated to provide a defense for you if any of the claims could be covered under your Liability coverage, but the company may not be obligated to pay the damages for certain types of claims listed as part of the legal complaint against so will try to make you aware through a Reservation of Rights Letter.

This type of letter just signals that the insurer thinks there may possible be grounds to deny coverage for at least part of the claim against you. A legal filing or claim against you may allege some counts that the policy may or may not cover, such as intentional acts, or other items that are clearly outside the scope of your Liability policy. A claim or court filing against you may include both covered and excluded matters.

So in essence the letter says that the insurance company is investigating the claim but preserve their right to later deny coverage if investigation shows that it is not a covered loss. By receiving the letter insureds should not be able to claim that the insurer, by its actions, led the policyholder to believe that coverage existed and would cover everything claimed against them.

If you have received a Reservation of Rights Letter than you can discuss it with your insurance agent to find out more about its specific meaning. Your state's insurance regulator should also be able to give you more information on this type of letter and let you know your consumer rights.