Missouri Insurance Lawyer Blog

This is a two part blog covering some things Missouri policyholders involved in a personal injury claim and who receive reservation of rights letters from their liability insurance company should understand. There is some good news, a reservation of rights letter means the insurance company is offering to pay your defense costs, but the bad news is that the insurance company is reserving its rights to deny coverage and sue you the policyholder or insured to obtain back the defense costs expended. Insurance companies often send reservation of rights letters to their policyholders because their broad duty to defend is implicated by the filing of a petition against their insured. Because the duty to defend is broader than the duty to indemnify there is a possibility the insurance company may be contractually obligated to pay for the defense even if it is not eventually required to pay for any liability alleged. In addition by asserting a reservation of rights letter, a company can undertake a defense and investigation of the claim and coverage at the same time and preserve its rights to disaffirm coverage without precluding itself from asserting defenses to the coverage at a later date, and managing their exposure to bad faith claims. Generally speaking to avoid waiving defenses, the letter will identify every possible coverage defense. Depending upon the individual facts, the doctrine of estoppel and/or waiver may prevent an insurance company from later asserting a defense that it failed to include in its reservation of rights letter. Unfortunately, reservation of rights letters are favorable for insurance companies, are fraught with danger for the policyholder. The mere issuance of reservation of rights letter indicates that there is a conflict of interest between the policyholder and the insurance company. This conflict of interest alone would advise that a policyholder should hire an independent attorney to represent them and not rely on the attorney appointed by the insurance company to provide a defense. Attorneys hired by insurance companies are often financially dependent upon the insurance company and that they receive much of their work from the company. While appointed defense counsel may diligently represent your interest in the alleged lawsuit, it is difficult to believe that that counsel can ignore their own financial interest, and give independent advice on your dispute with the insurance company. Most defense insurance counsel will defend the allegations in the lawsuit, but advise that you should hire personal counsel on the coverage issues. Unfortunately, there is often interplay between the allegations of liability and the triggers for coverage which are in dispute between the policyholder and the insurance company which lead to conflict of interest issues with insurance defense counsel. Bottom line, you should hire an independant lawyer to protect yourself. In part II, we will discuss the right of control, the duty to cooperate and the right to reject the reservation of rights. Chris Faiella is a personal injury lawyer in Missouri with the law firm of Tatlow, Gump & Faiella.