You’ve reported a potential liability to your insurance company. In response, your insurer sends you a “Reservation of Rights” letter. A “Reservation of Rights” letter typically says that the insurer will accept the defense of the lawsuit against you “subject to a reservation of rights.” The letter may explain the facts of your case as the insurer sees it, quote portions of the insurance policy, and conclude that the insurer “reserves its right to deny coverage” based on those facts and policy provisions. This means that it will defend you for now but may argue that it has no obligation to cover you later, including suing you in court to get out of paying, if it chooses. The letter may also say that the insurer has hired defense counsel to represent you.

At that point, you may ask yourself: Is my claim covered or not? Does this lawyer work for me, or my insurance company?

As to whether your claim should be covered without any insurer “reservations,” it’s important to consult a policyholder coverage attorney. With one of the largest insurance coverage practices in the Midwest, Plews Shadley Racher & Braun has the skill and experience to navigate tough coverage disputes. When it comes to insurance coverage, we only work for policyholders, never insurers.

As to your representation in the lawsuit, if there is a “significant risk” that the lawyer selected by the insurer, and subject to its direction, would be “materially limited” in representing you because of the lawyer’s relationship with the insurer, you are entitled to select you own independent counsel, paid for by the insurance company. Indiana law is well settled on this point. When there is more than one potential way to defend a lawsuit, and at least one of those ways would influence the insurance coverage dispute, a conflict of interest exists and the policyholder is entitled to independent counsel.

One court has explained this reality: “Even the most optimistic view of human nature requires us to realize that an attorney employed by an insurance company would slant his efforts, perhaps unconsciously, in the interest of his real client―the one who is paying his fee and from whom he hopes to receive future business—the insurance company.” Armstrong Cleaners, Inc. v. Erie Ins. Exch.,364 F. Supp. 2d 797, 815 (S.D. Ind. 2005).

Does such a conflict of interest exist in your “Reservation of Rights” letter? It’s important to answer that question at the beginning of your lawsuit before strategic decisions are made. Plews Shadley Racher & Braun can assist you in ensuring your lawyer has your interest—and only your interest—as their top priority.

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Tagged In: claim, coverage, Indiana, insurance, liability, reservation of rights