New England businesses carry liability and other insurance to protect them from the uncertainties of life.

For example, no matter how hard one works, one major disaster, like a fire, can ruin the prospects of a small business owner.

Likewise, an owner can take precautions, but there’s always the possibility that they’re going to be held legally accountable for an accident or human error.

The insurance company may not want to cover a claim

Businesses in Massachusetts and New Hampshire pay their premiums precisely so their insurance companies can step and cover their liabilities and, if needed, pay for their legal defense.

However, insurance carriers sometimes, rightly or wrongly, believe that the claim is not their responsibility. Of course, taking this position will commonly lead to an insurance dispute. For this reason, rather than just denying a claim outright, the insurance company may instead issue what is called a reservation of rights letter.

Insured businesses should take a reservation of rights seriously

A reservation of rights letter lets someone with an insurance policy know, in detail, that the insurance company believes some or all of their claim is not covered.

The point is to allow the insurance carrier to take some actions without giving up its right later to deny coverage. The letter has to explain to some extent why the insurance company is reserving its rights.

Insurance companies commonly issue reservation of rights letters when they choose to defend a business from a lawsuit but do not want to commit to paying a claim.

While they may seem routine, a business that receives a reservation of rights letter should take it seriously.

The reservation of rights gives the business owner certain additional options when dealing with the insurance carrier which they may well need to exercise to avoid getting stuck paying out of pocket for a claim that they cannot afford.