I Thought My Insurance Would Cover This. What’s This Letter From The Insurance Company?

You buy insurance to protect your business (or you, personally) from claims. When a claim is covered by the terms of the policy, insurers have two separate duties: (1) to defend you; and (2) to pay damages. If there is an accident, you expect your insurer will perform these duties: hire a lawyer to defend you and pay lawfully proven damages, if any.

You become aware someone has been injured on your property, or claims your product has caused harm, or was injured in an accident with one of your employees. You notify your insurer and believe the claim will be handled. Then, you receive a letter from your insurer, indicating the insurer is investigating the claim and will hire a lawyer to defend you—but that it is reserving its right to change its mind—meaning that it can decide later to stop paying the lawyer or to refuse to pay the claim. You have received a “Reservation of Rights” letter (“ROR” letter ).


“ROR” letters are often long and complicated. They recite facts, contain excerpts of policy language, and state the insurer’s contentions. Although reading it and understanding it may be challenging, you should not ignore a ROR letter.

If you do not respond to the insurer’s letter, your lack of response will be taken as an implied agreement to the insurer’s contentions, as well as your acceptance of the services of the lawyer hired by the insurer under whatever terms the insurer outlines in the ROR letter. Furthermore, the letter may ask you to provide more specific information to aid the insurer’s investigation. Such cooperation is required under the insurance policy and requests should be responded to promptly.

Instead, you will want to have your attorney review the ROR letter, the policy, and the facts of the claim.  Based on that review, your attorney can advise you how to best respond to the ROR letter, including:

  • challenging any unsupported or incorrect assertions;
  • seeking withdrawal of the reservations;
  • negotiating a non-waiver agreement; and/or
  • initiating or defending coverage litigation.


There are certain requirements for an effective reservation of rights.

First, the ROR letter must “fairly inform” you of the insurer’s position and the specific basis for the insurer’s reservations about its coverage. The language of the ROR letter must be unambiguous. If it is ambiguous, the letter will be construed strictly against the insurer and liberally in your favor. A well-written ROR letter should tie the facts to the cited policy provisions and explain why the insurer believes those facts and policy provisions may result in no coverage.

Some issues affecting coverage may be known from the outset of a claim, e.g., the insured’s failure to give the insurer timely notice of the claim. Possible defenses based on issues known to the insurer should be listed and explained in the ROR letter. The insurer’s failure to list specific defenses it intends to assert may result in a waiver of the insurer’s defenses. However, other defenses to coverage may arise as the evidence is developed, e.g., where there is an exclusion in the policy and facts are learned later that support the exclusion. An insurer is afforded some time to investigate and analyze the circumstances before being required to provide the full basis for its coverage position. If those facts are not known at the outset of a claim and are learned later, the insurer may send a new or amended ROR letter.

Waivers of the insurer’s defenses are uncommon and even disfavored under Georgia law; however, arguing for a waiver can be highly important to you. If the insurer has waived its coverage defenses, you may be entitled to payment of all of your attorney’s fees and full payment of claims, up to the dollar amount of coverage you purchased.

In addition, you and your attorney should carefully review a ROR letter to:

  • determine if the ROR letter is timely;
  • verify that the dates, coverage amounts, and facts recited in the letter are accurate;
  • compare the policy language in the letter to your policy, assuring the language is the same and noting errors or incomplete selections;
  • determine if the insurer is reserving its rights to deny coverage of the entire claim or just a part;
  • determine if the same facts would be used to determine your liability for damages and the coverage issues; and
  • look to see if the insurer is claiming the right to make you reimburse it for the fees of the lawyer it hired to defend you.

You May Have a Right to Your Own Independent Counsel.

Most insurance policies allow the insurer to control the defense of the case and to select the attorney to defend the case. The lawyer hired by the insurance company is deemed to have an attorney-client relationship with both the insured and the insurer. Usually, joint representation of both the insured and the insurer is not a problem because the interests of the insured and the insurer are aligned. However, when the insurer defends and retains counsel under a ROR letter, the interests of the insured and the insurer may differ. If the differences between the interests of the insured and the insurer are: significant (not merely theoretical) and, actual (not merely potential), the insurer may have an obligation to pay for “independent counsel” to represent you, the insured. Under those circumstances, independent counsel is usually the attorney who normally represents your business or you, individually.

In addition, where the insurer chooses the lawyer to represent you, that lawyer may have an on-going business relationship with the insurer—which may result in a potential conflict of interest for that lawyer. The lawyer’s desire to receive additional work from the insurer may result in a conscious or subconscious steering of the claims to benefit the insurer rather than you, the insured —especially if there are truly conflicting interests. For example:

  • Where there are multiple claims, some potentially covered and some potentially non-covered, the lawyer retained by the insurer may consciously or subconsciously conduct the investigation and development of the evidence in a way that makes it more likely that the jury’s verdict would award damages on the non-covered claims rather than those claims for which the insurer is obligated to provide coverage.
  • If the policy excludes coverage arising from certain conduct and the insurer reserves the right to disclaim coverage based on whether that conduct occurs, there is a conflict of interest: you will want to show that any legitimate damages resulted from covered acts and the insurer will want to show that damages arise from your acts within the exclusion.

Where there is the potential for such a conflict of interest, some courts have ruled that the insurer must pay for independent counsel selected by the insured to handle the defense. Those courts recognize that the lawyer retained by the insurer cannot represent truly serious conflicting interests. The ultimate question is whether, under the facts and circumstances of a particular claim, the insurer’s reservation of rights renders it impossible for counsel selected by the insurer to defend both the interests of the insurer and those of its insured.

If the ROR letter creates a serious and actual conflict between your interests and those of the insurance company, you should ask the insurer to provide independent counsel. In Georgia, the independent counsel issue is not fully resolved. In 1963, a Georgia court held that attorneys, whether or not paid by insurance companies, owe their primary obligation to the insured they are employed to defend (i.e., you, not the insurance company). In 1989, a federal court held that the insurer must choose between denying a defense to the insured or providing a defense in cooperation with counsel retained by the insured and paid for by the insurer.

The ROR Letter May Contain a Requirement that You Reimburse Defense Costs.

The ROR letter may assert that you will be required to reimburse the insurer for attorney’s fees and other defense costs if it later determines there is no coverage. Your insurance policy may already obligate you to do this—however, if it does not and you fail to object to this requirement when presented in the ROR letter, the insurer will argue that your failure to object constituted a new agreement to reimburse the insurer for these fees and costs.


Once you have reviewed the ROR letter, you should respond to the insurer in a timely manner. Your silence could be used against you. The response should:

  • state that you are reserving all of your rights under the policy;
  • state that you will cooperate and will provide the information the insurer requested to the attorney the insurer retained to defend you;
  • correct any errors as to dates or facts set forth in the ROR letter;
  • identify any misquoted or omitted policy language that is beneficial to you;
  • state your disagreement with the insurer’s contentions;
  • reserve the right to hire independent counsel (at the insurer’s expense), if there is a conflict of interest; and
  • challenge the insurer’s effort to have you reimburse it for defense costs, unless that right is already given to the insurer in the policy.


If the insurer flatly denies coverage, you will have no insurance coverage for the claim you submitted to your insurer. You would need to hire a lawyer and fund the payment of any settlement or verdict. If, however, you have a good faith belief that the insurer acted wrongly in denying  coverage, you may sue the insurer, alleging a breach of the insurance contract and seeking recovery of all your losses, including all of the fees paid to defend the case, the amount of any settlement or verdict paid, and possibly the fees incurred in proving the insurer breached the contract of insurance.

If the insurer agrees to defend under a reservation of rights, but you reject the insurer’s reasoning, you and the insurer could enter into an agreement expressly stating: that the insurer is not waiving its coverage defenses; that the insured preserves its right to demand coverage; the terms under which the insurer would defend the claim (such as who controls the defense, how strategy is determined, if settlement is pursued how it would be funded); that the lawyer retained by the insurer and paid by the insurer owes loyalty only to the insured and has a duty to protect the insured’s confidential information from disclosure to the insurer; whether separate counsel is required (and, if so, how legal bills are reviewed and paid); and, the rights of the parties once the claim is resolved (e.g., whether the insurer is entitled to reimbursement of defense costs paid). This agreement is called a “Non-Waiver Agreement”.

If there is a dispute over coverage and it is not possible to enter into a non-waiver agreement, the insurer must then file a separate action, called a “Declaratory Judgment Action,” asking the judge to review the matter and declare if there is coverage for the claims. You would be a defendant in that action and would need to hire your own attorney to convince the court there is coverage.


If you receive a ROR letter, your attorney should review the ROR letter, the policy, and the facts of the claim and advise you how to best respond. If we may be of assistance, contact Mike Reeves at mreeves@fh2.com or (770) 399-9500.

Mike Reeves
About the author:
Mike Reeves, Partner, Practice Leader – Litigation
With forty years of practice in a wide variety of business and personal disputes, Mike represents small and large businesses as well as individuals. His wealth of experience allows him to target the strengths and weaknesses of a matter and focus on efficient resolution. For more information about Mike, click here.

The above article is intended for information purposes only. It is not intended to constitute legal advice or the provision of legal services, and such material is not guaranteed to be complete, correct, or up-to-date. The services of a competent professional should be sought if legal or other specific expert assistance is required – you should not act or rely on information in this article without seeking the advice of a lawyer. Transmission of the information and material herein is not intended to create, and receipt does not constitute, an agreement to create an attorney-client relationship with Friend, Hudak & Harris, LLP or any member thereof.