Which term describes the instrument sent by an insurer indicating a claim may not be fully covered, used to preserve defenses against estoppel or waiver?

Which term describes the instrument sent by an insurer indicating a claim may not be fully covered, used to preserve defenses against estoppel or waiver?

• A. Negligence
• B. Self-insured Plan
• C. Subrogation
• D. Reservation of Rights letter

Answer: (D)

When an insurer isn’t certain that a claim will be fully covered, they issue a Reservation of Rights letter. This formal notice explains that the insurer is defending or paying defense costs for the claim, but it is doing so under a reservation of rights because some or all aspects of coverage may later be denied or limited. The key purpose is to preserve defenses against estoppel or waiver: if the insurer acted as if the claim were fully covered without clearly signaling that coverage is unresolved, the insured might argue that the insurer has waived its rights or is estopped from denying coverage later. The reservation keeps the door open for the insurer to deny or limit coverage while continuing to handle the claim under the policy. It also informs the insured that they may want to obtain independent counsel if there’s a potential conflict between defense arrangements and coverage. The other terms don’t describe this instrument. Negligence is a failure to exercise reasonable care. A self-insured plan is an arrangement where an employer pays claims directly. Subrogation is the insurer’s right to recover paid claims from a third party.

When an insurer isn’t certain that a claim will be fully covered, they issue a Reservation of Rights letter. This formal notice explains that the insurer is defending or paying defense costs for the claim, but it is doing so under a reservation of rights because some or all aspects of coverage may later be denied or limited. The key purpose is to preserve defenses against estoppel or waiver: if the insurer acted as if the claim were fully covered without clearly signaling that coverage is unresolved, the insured might argue that the insurer has waived its rights or is estopped from denying coverage later. The reservation keeps the door open for the insurer to deny or limit coverage while continuing to handle the claim under the policy. It also informs the insured that they may want to obtain independent counsel if there’s a potential conflict between defense arrangements and coverage.

The other terms don’t describe this instrument. Negligence is a failure to exercise reasonable care. A self-insured plan is an arrangement where an employer pays claims directly. Subrogation is the insurer’s right to recover paid claims from a third party.