Be Proactive When Some Claims Are Not Covered by Insurance

Carol Keough May 30, 2013

The company has been sued.  The claim is turned over to the company insurer.  A letter arrives from the insurer which tells the company that some claims are covered and some may not be covered.  This letter is called a Reservation of Rights letter.  The purpose is to put the company on notice that the insurer will defend the company against all the claims, but when the suit ends, the insurer will only pay for those losses that are covered by the insurance policy that the company bought.  Sometimes the company is just so relieved to receive a defense for the suit that it can forget that the reservations of rights letter is a warning to the insured that the insured and not the insurer has the obligation in Texas and many other states to prove that the damages in the lawsuit are because of a covered claim.  If the insured cannot show the claim for damages is covered by the policy, there is a potential that the insurer will not have to pay the loss.

When the insured gets this reservation to deny coverage, this is a time to be diligent and consider carefully monitoring the suit with an attorney that is looking out solely for the interests of the company and not just for the defense of all the claims.  The defense counsel hired by the insurer will not be involved in coverage under the policy.  Defense counsel owes a fiduciary duty and a duty of loyalty to the insured to protect the insured company’s rights in the defense of the lawsuit.  The company must retain separate counsel to protect its rights under any available insurance.  The decision to hire coverage counsel can be critical in obtaining coverage for the damages when the case settles or the case is tried to a judgment.  An early decision to protect coverage for the damages, with coverage counsel may provide the company with added security in achieving the goal of a covered loss.

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