You Received a Reservation of Rights Letter. What Now?

Why insurers send a reservation of rights letter

Common reasons on a property claim include:

• The cause of loss is unclear, for example whether water came from a sudden pipe failure or from long-term seepage.
• More than one cause may be involved, such as wind and flood in the same storm, where one may be covered and the other may not.
• There is a question about when the damage happened, including whether it began before the policy period.
• A possible exclusion may apply, such as earth movement, mold or faulty workmanship.
• A policy condition may not have been met, for example late notice or a failure to protect the property from further damage.
• The loss is large, and the insurer wants to keep its options open while an engineer or specialist investigates.

The letter usually identifies which provisions are at issue. That list is often the most useful part, because it points to what the investigation is about.

What to do in the first week after the letter arrives

1. Read it for the provisions, not the tone. Find the paragraph that lists the policy sections being reserved on. Much of the rest is often standard language, and those provisions show what you will need to answer.
2. Keep cooperating. Many policies include a duty to cooperate, so check yours. Typical requests include documents, access for inspections and, sometimes, an examination under oath. Cooperating does not by itself concede anything, but ask an attorney if you are unsure.
3. Answer carefully. You are generally asked to cooperate, not to speculate. If you do not know when a leak started, it is reasonable to say you do not know. A guess offered early can be repeated later in the insurer's file.
4. Start your own evidence file on the reserved issue. If the question is sudden versus gradual, that may mean the failed component, moisture readings and photographs. If it is wind versus flood, that may mean high water marks, debris lines and the direction of material failure. Gather it early, because mitigation and repair can remove evidence quickly.
5. Ask for the basis in writing. You can ask the insurer to explain in writing how it reached its decisions about your property. Ask whether an engineer or specialist report exists, and ask for the complete itemized estimate rather than the summary page.
6. Keep a dated log. Record every call, letter, email and inspection with the date, the name and what was said. Texas sets deadlines that apply to insurers as well as to policyholders, and a dated log helps show when things happened.

What a reservation of rights letter does not mean

• It does not necessarily mean your claim is denied. A letter like this is a notice, not a decision.
• It does not mean you should stop protecting the property. Policies commonly expect reasonable steps to prevent further damage, and neglecting that can give the insurer another argument.
• It does not necessarily pause your deadlines. Policies and Texas rules can set time limits for things like recoverable depreciation, a sworn proof of loss and legal action. Note those dates when the letter arrives.
• It does not oblige you to accept the insurer's description of the loss. If the letter calls it gradual seepage and you believe it was a sudden failure, that is a factual question, and evidence helps answer it.

Mistakes that can cost a policyholder coverage

• Ignoring the letter. The investigation can continue whether or not you take part, based on the insurer's evidence alone.
• Refusing to cooperate out of frustration. That can turn a coverage question into a separate problem.
• Finishing repairs before the reserved issue is documented. Once a wall is closed, the evidence behind it may be gone.
• Speculating in a recorded statement or an examination under oath. Precise answers tend to serve you better than guesses.
• Assuming it is a denial and giving up. It is a notice, not an outcome.

When to get an independent opinion

A reservation of rights letter can be a reasonable point to get an independent opinion, because it points to the issue the claim may turn on. That gives you a chance to document that issue before a dispute rather than after one.

Where the issue is the amount or extent of the damage, a public adjuster can help. Where it is about coverage itself, and especially if the letter points toward a denial under an exclusion, speaking with an attorney early is worth considering. A public adjuster does not give legal advice.

We help policyholders in Alvin, Houston and along the Texas Gulf Coast. Bring the letter, the policy and whatever the insurer has sent to a free claim review.