What is the main purpose of a Reservation of Rights Letter?

The main purpose of a Reservation of Rights Letter is to inform the insured that the insurer may raise coverage issues in the future. This letter is a formal communication typically issued by the insurance company to the policyholder when there are uncertainties about the coverage of a claim. By sending this letter, the insurer makes it clear that while they are currently investigating or processing the claim, they reserve the right to challenge or deny coverage based on the policy terms.

This communication serves several important functions: it protects the insurer's rights by not waiving any defenses they might have regarding the claim, and it provides transparency to the insured about potential issues that could affect the outcome of their claim. The issuance of this letter helps in avoiding misunderstandings or assumptions made by the insured regarding the acceptance of the claim.

Understanding this concept is crucial for both insured parties and public adjusters, as it outlines the conditional nature of claim processing and the importance of clear communication regarding coverage aspects.