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 reserving the right to later deny coverage or withdraw their defense if their investigation reveals the claim is not actually covered.
What You Need to Know
This typically occurs when a claim has both potentially covered and potentially non-covered elements, or when the facts are unclear. 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 which allegation is really at play. Or if a customer sues claiming food poisoning, but your insurer discovers repeated health code violations, they might issue a reservation of rights because policy exclusions could apply for losses resulting from knowing violations of law.
While it's concerning to receive one of these letters, 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:
- Consider hiring your own attorney, separate from the one the insurer provides, to protect your interests
- Cooperate fully with the insurer's investigation and be truthful about all facts
- Understand that you may ultimately be responsible for the claim if the insurer determines there's no coverage
Some reservation of rights situations resolve in your favor once facts are clarified, while others end with the insurer withdrawing coverage.
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