Someone has filed a lawsuit against you or your business. You have a liability policy, so you notified your insurance company.
Then, the company sends you a letter. It states that they will pay a lawyer to defend you but that the company is “reserving its rights.” What does that mean?
The insurance company’s duty to defend and indemnify
In Mississippi, a company selling liability insurance owes the insured two distinct duties. Those duties are:
● To defend
● To indemnify
The “duty to defend” means the insurer must hire a lawyer to defend you in court. In most instances, the company decides which lawyer to hire.
The duty to indemnify means that if you have a judgment entered against you, the insurance company must pay that judgment (up to the policy limits).
Of course, if someone is suing you for something not covered by your policy, the insurance company does not owe you a duty to defend or indemnify.
So why is the company reserving its rights?
In Mississippi, the duty to defend it is broader than the duty to indemnify. If it is possible that the claim might be covered by the policy, the insurer company must defend you.
Later, after more facts come out, it may be that the claim was not covered by the policy after all. Therefore, the insurance company would have no duty to indemnify.
Here is an example.
Assume somebody sues you for causing an accident. The plaintiff alleges in the complaint that you either negligently or intentionally caused the accident.
Also, assume your policy covers you for negligent acts but not intentional acts. The insurance company must defend you because it is possible you were not at fault or were only negligent.
But if, at the end of the case, the court decides you acted intentionally, the insurance company will deny any obligation to pay the judgment.
So, in a reservation of rights letter, the insurance company maintains the right at the end of the case to declare that the judgment is not covered.
There is some good news here.
In Mississippi, when an insured receives a reservation of rights letter, the insured may be able to hire its own independent lawyer. Also, the insurance company may have to pay for the second lawyer as well.
This second lawyer is called “Moeller counsel.” That lawyer’s job is to look out specifically for your interest without regard to the interest of the insurance company. (Read more about Moeller counsel here.)
If you received a reservation of rights letter, contact the Panter Law Firm to see if you are entitled to Moeller counsel. 601-607-3156
Panter Law Firm, PLLC, 7736 Old Canton Road, Suite B, Madison, MS 39110.