Wednesday, April 16, 2008

What does that letter from your insurer mean?

You have been sued. You immediately notify your insurance carrier. An adjuster--an employee of the insurance company assigned to your claim--contacts you, asks you some questions, and says the insurer will get back to you.

A few weeks later you get a letter from the insurer that quotes a lot of gobbledygook from your insurance policy. Towards the end, the letter states that the insurer will "defend you" in the lawsuit, but is "reserving its rights to disclaim coverage." What does this mean and what should you do?

The insurer is telling you that it will pay for an attorney to defend you in the lawsuit. This is called defending the suit. However, at the end of the lawsuit, if you lose, the insurer may decide that it will not pay the judgment against you. This is called the insurer reserving its rights.

If you receive a reservation of rights letter you have some options.

* You can take the path of least resistance and hope for the best. The insurer will choose and pay for an attorney to defend you in the lawsuit. Maybe you will win, and if you lose maybe the insurer will pay the claim. (In a later post I will talk about when this may happen.)

* The insurer will probably not tell you this, but in most cases when you have received a reservation of rights letter you can insist that the insurer allow you to choose the attorney that will defend you and that the insurer pay that attorney's fees.

* You can agree to the attorney the insurer hires on your behalf, but you also hire and pay for your own attorney to monitor the lawsuit and make sure that your rights are being adequately protected.

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