Coveragejet

 Reservation of Rights Letter and    Non-waiver Agreement
by Robert Carper



A.     Reservation of Rights Letter:  Definition

          A reservation of rights letters is a unilateral declaration or notice sent by the insurer to the insured, another potential claimant, or representatives of either,  stating that the insurer is reserving its right to later assert coverage defenses or otherwise contest liability upon completion of its investigation of the claim.  It is the insurer's statement that even though the insurer undertakes an investigation of the events related to a loss, the insurer does not intend to give up its right to later contest liability.  Such a letter does not contemplate that there will be an explicit acquiescence or any other response by the recipient.
 
   B.     Nonwaiver Agreement:  Definition

          A nonwaiver agreement is a bilateral contract between an insurer and an insured granting the insurer authorization to conduct its investigation of the claim while preserving its rights to later contest liability depending upon the outcome of its investigation.
 
 C.     Comparison of Reservation of Rights Letter and Nonwaiver Agreement

          Unlike nonwaiver agreements, reservation of rights letters are declaratory and self-serving and do not contemplate an explicit acknowledgement or agreement by the insured.  They are therefore much more common than nonwaiver agreements.

          The nonwaiver agreement is similar to a reservation of rights letter in that it preserves the insurer's right to contest its liability to the insured.  Once the parties sign the agreement, it can be assumed that the insured assented to the contents of the agreement.

          Insurers may use either a reservation of rights letter or a nonwaiver agreement to prevent the operation of waiver and estoppel.  Assuming that the insured is willing to sign a nonwaiver agreement, from the insurer's point of view the nonwaiver agreement is preferable to a reservation of rights letter since it can potentially serve as a better rejoinder to an insured's allegation of bad faith claim investigation practices:  the nonwaiver agreement contains the insured's specific acknowledgement of the need and reasons for the insurer's continuing investigation.