Calling A Letter A "Reservation Of Rights" Does Not Necessarily Make It So

Many insurers are in the habit of sending perfunctory "reservation of rights" letters to their insureds throughout the lifetime of a claim.  The reason they do so is not a very well-guarded secret in the insurance industry.  An insurer that acknowledges coverage must pay any eventual settlement or judgment, while an insurer that denies coverage generally waives significant rights with respect to the defense and settlement of the claim.  Sending a stream of letters purporting to "reserve rights" is a common insurer tactic for kicking a coverage decision down the road while watching how the claim against the insured develops.  One insurer recently learned the hard way that this practice can have severe consequences, when a Missouri appellate court held that the insurer waived any right to deny coverage by sending ineffective "reservation of rights" letters.