Armando: Hi Jason, my dad just got a Reservation of Rights letter from his insurance company, and he asked me to explain it to him. It’s confusing, can you help us?
Jason: Thanks for your question, Armando. But before I explain a Reservation of Rights letter, can you tell me why your father might have received this letter?
Armando: He was in a car accident recently. My dad is okay, but the other guy had a few injuries, and his car is pretty messed up.
Jason: Was it determined that your dad was at fault for the accident?
Armando: That’s what they are saying. My dad swears the guy never put his turn signal on, but since the police report says it’s my dad’s fault, the other guy is coming after him for damages.
Jason: I see. Then that would explain why your dad received the Reservation of Rights letter from his insurance company.
Armando: What do you mean?
Jason: A Reservation of Rights letter is a way that insurance companies try to protect themselves from paying for the defense of something that is not covered in an insurance policy.
Armando: So, my dad’s insurance company is trying to get out of paying the other driver’s bills?
Jason: I can’t speculate on the intentions of your dad’s insurance company. It could be a standard procedure for this insurance company to send such a letter. However, from my experience, there are insurance companies out there that try to use this letter to their advantage.
Armando: How would they do that?
Jason: Well, they can use the letter to decline covering the insured for any portion of the judgment that’s not covered under the policy. In some cases, they can withdraw entirely from the defense or even seek reimbursement from the insured person.
Armando: That’s awful.
Jason: Yes. I’ve even seen situations where the insurance company claims the policy isn’t enforceable because of a “breach of policy condition” such as a late notice.
Armando: My dad is a good man, and he pays his bills on time, including his car insurance. He’s never had an accident before like this. It doesn’t seem right that his insurance company would do this to him.
Jason: I completely understand your position, Armando. At this point, we don’t know what the insurance company’s intentions are with the letter. But I recommend that your dad protect himself by reviewing it with an attorney.
Armando: How would that help?
Jason: A Reservation of Rights letter must contain some very specific legal information. It’s supposed to be written in plain language too so that it’s not confusing. But even so, unless you are very familiar with the legalities of it, it’s easy to overlook something.
Armando: So, there could be something in that letter that lets the insurance company off the hook. But if my dad doesn’t know what to look for, his insurance company could get away with it.
Jason: Correct.
Armando: Thank you Jason for explaining this to me!
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