The reservation of rights
doctrine has been characterized by Professor Cohen, Reporter for the Restatement, and in the Restatement materials as "pernicious" and "unfair," (22) "archaic," (23) the subject "of frequent and forceful criticism," (24) and "of frequent and effective criticism," (25) "long criticized by commentators and some courts," (26) and as having "outlived whatever usefulness it may have had." (27)
First, an insurer defending under a reservation of rights
is not necessarily required to pay for separate counsel chosen and retained by the insured.
It is not, as is sometimes argued by the insurance industry, for the risk manager to act as the insurance company's agent, apologetically explaining to senior management that the reservation of rights
or denial of coverage is reasonable and acceptable.
2010) that the right of reimbursement should be included in the insurance policy if the insurer wishes to preserve this right, as opposed to creating a new contractual obligation by way of an unilateral reservation of rights
letter within which the insurer attempts to preserve its right to reimbursement and where the insured accepts the defense.
In the interim, we recommend that insurers err on the side of caution and advise their New York insureds of their right to select independent counsel, at the insurer's expense, where a conflict of interest arises as a result of a reservation of rights
1992) (lawyer defending insured under reservation of rights
could not represent insurer in separate action for declaratory judgment that claims fell outside policy's coverage).
Even though many companies have experienced at least one D&O claim, often the Reservation of Rights
letter still comes as a shock to risk managers.
While leaving open the possibility of such a conflict in certain cases, the court declined to adopt a per se rule "requiring the appointment of an independent counsel whenever a carrier issues a so-called `global reservation of rights
' or, pursuant to Buss ...
On May 20, 2008, Moran sent a reservation of rights
letter to Johnson at her home address, which letter stated inter alia that "we are making this reservation of rights
because you have failed to cooperate in the investigation of this claim ***"
That's what it might feel like in a large Directors & Officers claim when you realize that insurers' reservation of rights
with respect to coverage apply to you as an innocent director as much as to your colleagues accused of fraud or dishonesty.
What do you do when the D&O insurer's coverage lawyer sends a 30page reservation of rights
letter listing a host of reasons why the policy does not or may not provide any coverage?
Owners defended the action under a reservation of rights
, but filed a declaratory judgment suit stating that the allegations within the suits were excluded by the employment-related practices exclusion.