What is the purpose of a Reservation of Rights Letter?

The purpose of a Reservation of Rights Letter is to allow an insurance company to investigate a claim while maintaining the right to deny coverage in the future if they determine that the claim isn’t valid under the terms of the policy. This letter is a formal communication that informs the insured that the insurer is not waiving any of its rights under the policy.

When an insurer issues a Reservation of Rights Letter, it ensures that they can gather more information and assess the claim thoroughly before making a final decision. This is important because certain conditions or exclusions may apply to the claim that are not immediately evident when the claim is first reported. By using this letter, insurers protect their interests while still beginning the claims process.

In contrast to the other choices, this option reflects the balance between the insurer’s obligation to investigate a claim and its rights regarding policy coverage. Other options suggest an outright denial or confirmation which does not reflect the investigative process and legal caution that the Reservation of Rights Letter embodies.