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A reservation of rights letter and its use in insurance claims

Imagine that you work for a small insurance company. A big storm has just hit your area, which means the number of claims you process in a given day has skyrocketed. While reviewing claims, you notice some inconsistencies in a few claims. In these select few, home owners are claiming strange damages to their homes not mentioned by other claimants in the area.

If you’re like a lot of people, you might start to question if the claims are really valid or if these homeowners are trying to take advantage of the situation. This is not an uncommon reaction in the insurance world. Successful insurance claims can sometimes cost an insurance company thousands of dollars. You want to make sure it goes to a policy holder who truly deserves and is owed that money.

Before jumping to conclusions though and assuming the worst, someone in a situation such as this should consider two things: investigating the claim further and issuing a reservation of rights letter.

By issuing a reservation of rights letter, an insurance company indicates to the insured that their claim may not apply to the damages they have indicated while at the same time affording the insurer the right to approve or deny a claim based on the information provided after further investigation.

Though the receipt of a reservation of rights letter might put an insured person on the defensive, in may be necessary in situations such as the one we presented above. While we’d like to think that everyone is honest, history tells us this isn’t always the case. Insurance companies have just as much of a right to defend themselves against fraudulent claims. With the help of a reservation of rights letter, protecting this right is more easily done.

Source: The International Risk Management Institute, “Reservation of rights,” Accessed Dec. 9, 2015

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