How to Respond to Insurance Companies' Questions While Preserving Your Coverage and Your Sanity

When you, as a policyholder, give an insurance company notice of a claim, the insurance company often will send a “reservation of rights” letter—especially where there are complex liability claims—preserving its right to give you a coverage decision after it investigates the claim (that is, if it doesn’t accept or deny the claim outright). These letters usually include lengthy lists of coverage defenses the insurance company reserves the right to assert and questions that it wants you to answer. Many policyholders are naturally overwhelmed by the questions and have no idea how to respond. But respond you must. And how you respond has the potential to make or break your claim. Luckily, common sense and some simple rules are usually enough to make sure your claim survives this early hurdle.

The insurance company’s questions often pose three problems. First, they may seek information solely to enable the insurance company to deny coverage, often on grounds that the notice was late. Questions such as “When did you know that there was a problem” seek to gain information to enable the insurance company to deny coverage on the basis that you failed to notify them timely of the problem. But you must remember that you are under no obligation to give the insurance company information that it can use to defeat coverage. You should provide information adequate to describe the nature of the claim, but it is the insurance company’s obligation to figure out how to defeat coverage.

Second, the questions may seek to learn your strategy for defending against the underlying claim. But that information may be subject to the attorney-client privilege or another similar protection, and revealing it to the insurance company at this point may waive your right to protect it from disclosure to others, such as those with claims against you. You should never give the insurance company privileged information. In some states, the law will allow you to share privileged information with an insurance company that actually is defending you without losing the privilege, but discretion is a must.

Third, the questions may seek information that you could provide only at great cost. Perhaps they require that you provide massive amounts of documentation. Or, perhaps they are so technical that you must hire an expert to accurately respond. You are not required to expend extraordinary resources in order to meet your obligations under the policy. You should take a deep breath and remember that although you should provide information relevant to the insurance company’s investigation and handling of the claim, you need only do so within reason. Common sense is usually enough to determine what’s reasonable and what isn’t. You don’t have to bankrupt your business to provide information to the insurance company. You should give the insurer basic, non-privileged information that is inexpensive to provide. If providing more will be costly, you can invite the insurance company to your office to review the information and allow it to pay if it wants to learn more. Lastly, the insurance company may point to the policy requirement that you cooperate with it, but this “cooperation clause” only applies when the insurer actually defends you.

An insurance company’s reservation of rights letter can scare a policyholder into not pursuing a covered claim, or it can invite a response that sabotages the claim from the start. But you don’t have to be that policyholder. By being cautious and sensible, you can supply the information that you should without losing your claim, your privileges, your economic well-being, and your sanity.