What You Need to Know About Reservation of Rights Letters in Nevada

Liability insurance is a lot like a prenuptial agreement. You sign a prenup without the intention of getting a divorce, but if that happens, your assets are protected. With liability insurance, you don’t plan to get into an accident or have someone hurt at your business, but in case that happens and you are to blame, a liability policy will provide compensation for the injured party.

At least, that’s how it should go unless you receive a Reservation of Rights Letter.

In simple terms, a Reservation of Rights Letter will be issued by your insurance company to inform you that the claim made against your policy might not be applicable. These types of letters can come as a shock, especially when you thought you were covered. This is the exact type of scenario that the Law Office of Matthew L. Sharp can help with.

We’re an experienced Reno insurance bad faith lawyer who is all too familiar with reservation of rights letters and the tactics that insurance companies will deploy in order not to pay out a claim.

If you receive a Reservation of Rights (ROR) letter, it’s not the end of the claim process. You have many options to explore to compel the insurance company to enforce its policy. It will help to understand what this type of letter means for your claim and what those options are.

That understanding begins with learning how insurance companies are supposed to operate versus how they actually conduct business.

When there’s a disparity between those concepts, it may constitute insurance bad faith.

What Are the Insurance Company Obligations?

Before breaking down what receiving a Reservation of Rights Letter might mean, it will help to understand a few foundational insurance concepts.

Duty to Defend

The duty to defend refers to an insurer’s obligation to provide legal defense when a claim is filed against you that potentially falls within the scope of coverage. Under Nevada law, this duty is broad. That works in your favor. For instance, if you get into a car accident and are accused by the other driver that the accident was 100% your fault, your insurer must provide a defense even if coverage is ultimately disputed.

Of course, the insurance company would want to put up that defense because it could mean the blame is placed on the other driver. If the insurance company does engage in a failure to defend, you might be able to file a civil complaint against the carrier.

Duty to Indemnify

If, in that car accident case scenario, it is discovered that you were at fault, then your insurance company has a duty to indemnify. That means they are supposed to pay the covered losses, including settlements or judgments. Unlike the duty to defend, which happens at the start of the claims process, the duty to indemnify typically comes into play after the facts of the claim have been fully established.

If indemnification applies, your insurance company must pay covered damages up to the policy limits.

What Is a Reservation of Rights Letter?

A Reservation of Rights Letter is a formal notice from your insurance company informing you that, although it might defend you against the claim, it reserves the right to deny coverage for some or all claims later. Essentially, the insurer believes certain damages made against you are not covered in your policy. If their findings are “correct,” they can refuse to pay any settlements or judgments related to those claims.

These letters are quite common and provide insurance companies with limited legal protection.

A Reservation of Rights Letter will typically outline the alleged facts of the incident, cite specific policy provisions, and explain why coverage may be limited or excluded.

It is important to remember that this letter is not denying your coverage, but it is meant to put you on notice that a denial could be headed your way. If that were to happen, you would be personally responsible for paying any losses.

A Reservation of Rights letter is not just for auto insurance policies; it applies to any type of liability insurance. That includes your business premises liability policy.

What Should You Do After Receiving a Reservation of Rights Letter?

Receiving a Reservation of Rights letter can be unsettling, but ignoring it can put a target on your personal finances.  If you have received a Reservation of Rights letter, do not assume your insurer is acting in your best interests. Coverage disputes, delayed payments, and improper defense tactics may constitute insurance bad faith under Nevada law.

The Law Offices of Matthew L. Sharp represent policyholders facing unfair insurance practices.

Our firm helps clients evaluate Reservation of Rights Letters and pursue bad faith claims when insurers fail to uphold their obligations. If you believe your insurer is wrongfully limiting or denying coverage, contact our offices for a free case review.

We’ll help make sense of what is happening with the letter and inform you about what your next options might be.