It’s a peculiar fact that liability insurance is an industrybuilt on standardization of policy forms. And at no time are thoseforms more important than in the context of a claim. Yet thecritical document whose purpose is to explain to policyholders howthose forms may apply to their claim — the reservation of rightsletter — is anything but standardized. Simply put, reservation ofrights letters resemble fingerprints.

This lack of set guidelines for drafting reservation of rightsletters means that, no matter how much experience a person hasdoing so, it’s still easy to get something wrong. And courts havebeen penalizing insurers for issuing what they see as inadequatereservation of rights letters. This penalty can be severe: the lossof otherwise applicable coverage defenses.

What makes a letter a “reservation of rights” letter? Is itenough to simply label it a reservation of rights letter? Is itenough to say, sometimes many times over, that the insurer isreserving its rights to deny coverage? In some cases, the answer isno.