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Reservation of Rights Notices Must be Provided to Every Insured

A reservation of rights notice is a letter sent by the insurance company to its insureds (those covered under the policy) acknowledging that the insurance company is aware of the claim and are investigating it.  The letter explains that all or part of the claim may be denied coverage for various reasons (it "reserves" the insurance company's right to later deny coverage).  All insureds should receive timely notice of this potential denial of coverage so he or she can adequately protect his or her interests.  

A recent Pennsylvania Superior Court decision in the case of Erie v. Lobenthal held that all insureds must receive notice of the reservation of rights letter.  In the case before the Superior Court an adult child, residing with her parents, was covered under her parents' homeowner insurance policy.  A personal injury lawsuit was filed wherein the adult child was named as a defendant.  The parents' insurance company sent a reservation of rights letter which was addressed to the parents and to their attorney.  The insurance  company, however, failed to send a letter addressed to the adult child.  The court ruled that this failure prevents the insurance company from denying benefits to her.  As an adult the she was clearly entitled notice that her insurance carrier might deny coverage for a lawsuit in which she was a named party.  The Honorable Judge Ford Elliott said that ". . . where an insurer fails to clearly communicate a reservation of rights to an insured, prejudice may be fairly presumed."

This decision reminds us all to closely examine the notices you receive from your insurance company when you file a claim.  Every insured should receive timely notice that coverage may be denied.  If that notice is not given the insurance company may be prevented from denying coverage for your claim.  If you feel that your claim has been wrongfully denied by your insurance carrier you should consult an attorney right away to preserve your rights.

Source:  "Defendant Must Receive Reservation of Rights Notice", by Lizzy McLellan, The Legal Intelligencer, April 28, 2015

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