A reservation of rights allows an insurance company to defend a policy claim on an interim basis, but with a stipulation that the defense is not an acceptance of the case if it is not covered. The letter specifies that the insurer is only responsible for defending claims directly related to the policy. It is not the same as an “all rights reserved” notice in copyright law.
A reservation of rights is an aspect of insurance law that allows an insurance company to initiate a defense of a claimed policy claim on an interim basis. Many insurance policies include a clause stating that the insurance company will provide the policyholder with a defense in the event the policyholder is sued based on a covered claim. This is common in medical liability claims, for example, as well as general insurance claims. Most lawsuits have uncertain outcomes, however, and it’s rarely clear from the outset whether a case actually centers around something that’s covered under an insurance policy. Insurance companies will still mount a defense for their insured, but they do so with a reservation of rights.
The reservation of rights usually comes as a letter to the contractor. Its wording varies by application and by jurisdiction, but the main point is that the insurance company is launching a defense, but that defense should not be seen as an acceptance of the case if it turns out that the case is not covered. In other words, the insurance company will defend the case if the case ultimately involves something covered by the policy, but if it doesn’t, the defense will end and the policyholder will have to secure another representation. The reservation of rights results from the exact wording of the original policy and is based on a strict interpretation and application of contract law.
Most reservation of rights letters also specify that the insurance company only assumes defense obligations and potential liability for claims directly related to the policy. It is rare for a lawsuit to support only one claim. Usually only one or two of the alleged claims are actually related to the coverage, and an insurance company is only responsible for defending those that are.
In a medical malpractice lawsuit, for example, a plaintiff might argue that a doctor was negligent in the provision of care, acted willfully in the provision of care itself, made a billing error, and engaged in fraudulent financial practices. If your doctor’s malpractice insurance policy only covers you against general malpractice, the insurance company will defend you, but only against your malpractice claim. The insurer is not liable for billing or financial fraud claims, and if the court ultimately finds that the doctor’s actions were intentional rather than negligent, the insurance company is also not liable for that claim. The insurance company explains this to the doctor through a reservation of rights letter.
Without such a letter, an insurance company may be responsible for defending all claims, even those that have nothing to do with the policy, or those that are judged to be outside the scope of the policy. In most jurisdictions, the initiation of a defense is an implied acceptance of all claims, unless otherwise stated. The reservation of rights is that stipulation.
A reservation of rights is not the same as a statement that all rights are reserved. An “all rights reserved” notice, as seen on many multimedia products and in legal disclaimers, is an element of copyright law. By its very nature, a copyright grants the owner the exclusive and complete legal rights to distribute, market, and perform any copyrighted work. The addition of “all rights reserved” serves as a reminder of these rights, especially for consumers of copyrighted material such as movies, television shows, and music recordings.
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