What Is a Reservation of Rights?
If you've received a "reservation of rights" letter from your insurance company in Washington State, you might be wondering, "What is a reservation of rights?" or searching, "reservation of rights insurance WA." This common practice allows insurers to defend you in a lawsuit while reserving the right to deny coverage later, often leading to confusion and potential bad faith claims. Under Washington law, insurers have a broad duty to defend if there's any potential for coverage (the "eight corners rule"), but issuing a reservation of rights (ROR) protects their interests without waiving policy defenses. As a plaintiffs attorney specializing in insurance bad faith cases in Washington, we help clients challenge improper ROR letters and recover when insurers fail to act in good faith. This guide explains what a reservation of rights is, when it's used, and potential ramifications.
In 2025, with rising disputes over coverage in liability claims, understanding ROR can prevent unfair outcomes—don't let an insurer's letter undermine your rights.
What Does Reservation of Rights Mean in Washington Insurance Law?
A reservation of rights is a formal notice from an insurer stating they will provide a defense (hire lawyers and cover costs) against a lawsuit, but they reserve the right to later deny indemnity (payment for losses) if the claim isn't covered by the policy. This stems from the insurer's duty to defend, which is broader than the duty to indemnify—insurers must defend if the legal complaint alleges facts that could conceivably be covered, even if debatable.
In Washington, ROR letters must be timely, clear, and reference specific policy provisions to avoid bad faith accusations. They often include language like "we reserve all rights under the policy," allowing the insurer to investigate while defending.
Common Circumstances Where Insurers Issue a Reservation of Rights in Washington
Insurers use ROR in situations where coverage is uncertain, protecting against waiving defenses. Typical scenarios include:
Ambiguous Claims - If a lawsuit alleges intentional acts (excluded) but could be negligence (covered), the insurer defends under ROR.
Potential Policy Exclusions - For exclusions like pollution or professional services, ROR allows defense while reserving denial.
Late Notice or Misrepresentation - If the insured delayed reporting or misrepresented facts, ROR preserves the insurer's right to deny.
Coverage Disputes - In commercial liability cases, like construction defects, ROR is common to avoid prejudice.
Ramifications of a Reservation of Rights in Washington State
While ROR protects insurers, it has significant implications for insureds and can lead to bad faith if mishandled:
For the Insured - You get a defense, but conflicts arise—insurers may appoint counsel, but you can hire independent lawyers if interests conflict, with the insurer paying. Refusal without ROR could estop the insurer from denying coverage later.
Bad Faith Risks - Insurers must act in good faith; unreasonable ROR or failure to defend can lead to liability for judgments beyond limits, treble damages under IFCA, and attorney fees.
Settlement Issues - Under ROR, insurers must consider the insured's interests in settlements; refusing reasonable offers can trigger bad faith.
Prejudice Requirement - Insurers can't refuse coverage for late notice without showing actual prejudice.
If an ROR leads to harm, policyholders may be able to sue for bad faith, recovering extracontractual damages.
What to Do If You Receive a Reservation of Rights Letter in Washington
Review the letter carefully, note referenced provisions, and consult an attorney to assess if it's proper. Challenge unreasonable ROR via a bad faith lawsuit.
Protect Your Rights: Contact a Washington Insurance Bad Faith Lawyer Today
A reservation of rights in Washington state insurance law can complicate your defense—ensure your insurer acts fairly. At Hogue Law Firm, we review ROR letters and fight bad faith statewide.
Schedule a free consultation—call 509-934-1998 or fill out our online form. Safeguard your coverage now.