What is Reservation of Rights?

A Reservation of Rights is a formal notice from your insurance company stating that they are providing you with defense and potentially coverage for a claim under your policy, but they are reserving the right to later deny coverage or withdraw their defense if their investigation reveals that the claim is not actually covered. This typically occurs when a claim has both potentially covered and potentially non-covered elements, or when the facts are unclear.

The insurer issues a reservation of rights letter to protect themselves legally—by reserving their rights, they can investigate and defend the claim without waiving their right to later argue that the policy doesn’t actually provide coverage. The letter will typically specify the policy provisions or exclusions that might preclude coverage and explain that by defending you now, the insurer is not admitting that coverage exists.

What You Need to Know

Common Scenarios:

This situation most commonly arises when the underlying facts are unclear or when the lawsuit alleges both covered and non-covered acts. For example:

• If you’re sued for both negligence (typically covered) and intentional discrimination (typically not covered), your insurer might defend you under a reservation of rights while investigating whether the claim is really about covered negligence or excluded discrimination
• If a customer sues claiming they got food poisoning, but your insurer discovers during investigation that you had repeated health code violations for food safety, they might issue a reservation of rights because policy exclusions might apply for losses resulting from your knowing violations of law

What It Means:

While it’s concerning to receive a reservation of rights letter, it’s usually better than an outright denial of coverage—at least you’re getting a defense provided at the insurer’s expense while they investigate.

Why It Matters for Restaurant Owners

Receiving a reservation of rights letter can be unsettling because it means your insurance company is questioning whether they’ll ultimately pay your claim, even though they’re currently providing you with a defense attorney.

How to Respond:

However, you should take these letters seriously:

• Consider hiring your own attorney (separate from the one the insurer provides) to protect your interests
• Cooperate fully with the insurer’s investigation
• Be truthful about all facts
• Understand that you may ultimately be responsible for the claim if the insurer determines there’s no coverage

Potential Outcomes:

Some reservation of rights situations resolve in your favor once facts are clarified, while others end with the insurer withdrawing coverage.