First someone sued you or your agency. Now, your E&O carrier has sent you a reservation of rights (ROR) letter. What else could go wrong?

No one is ever excited about an ROR letter, but it’s not the end of the world.

As the insurer’s way of notifying the insured there may not be coverage for some or all of a claim, the ROR letter enables you to protect your interests that might not be insured.

The carrier is generally obligated to provide you with this notice as early as possible and is often only allowed to rely on the unsubstantiated allegations made in a complaint by the plaintiff. That means the carrier may need to raise potential coverage issues that may not even turn out to be an issue as the case develops (download the IA iPad app for an example of this).

Better yet, an ROR letter is not a disclaimer. In other words, the carrier at that point is agreeing to provide a defense (subject to the terms of the reservation) for the lawsuit you’re facing. The letter should advise you of what arrangements the carrier is making regarding your defense counsel (requirements vary by state).

Here’s what you should do upon receipt of the ROR letter:

• Review and make sure you understand the carrier’s position. If the carrier is not clear, feel free to request a further explanation.
• If you have additional information you believe will assist the carrier in clarifying or changing its position, provide it as soon as possible.
• If you still disagree with the carrier’s position, contact your own counsel for advice. Depending on the law in your state, you may have additional rights relating to an ROR letter. After asserting any additional rights you might have under your state’s laws, cooperate with your defense counsel to get the uncovered counts of the complaint.
• Plan to protect yourself or your agency on potentially uncovered counts.
• If the reservation is based on your conduct in complying with policy provisions—such as late notice, admissions or failure to cooperate—consider changing your agency procedures so you don’t find yourself in the same position in the future.

Charles W. Phillips, J.D. is a vice president, claims and liability management for Westport Insurance Corporation, which is part of the Swiss Re Corporate Solutions group. He manages a team that handles claims against insurance professionals out of the Overland Park, Kansas office.