When a car insurance company says it is reserving rights, the company will still defend you in a car accident lawsuit, but it may not cover all of your claims. A reservation of rights is not a denial of coverage, not yet. Auto insurance companies issue a reservation of rights notice in order to warn you that they may deny coverage for one or more claims later on.
What is a reservation of rights?
When you purchase car insurance, you purchase the right to have your car insurance company defend you and pay for liability in the event of a lawsuit. In other words, auto insurance companies assume the risk that people will file lawsuits against their policy holders. If you are involved in a car accident and someone makes a claim against you, the car insurance company then assumes their obligation to defend you.
In a case where it is uncertain whether the claim is covered or not, the car insurance company must still investigate every claim and deal with you fairly. However, this doesn't mean that auto insurance companies have to cover you for every single situation.
For example, your insurance policy usually does not cover intentional or deliberate acts. If another driver claims you rear-ended his car on purpose, this will probably trigger a reservation of rights notice. The company notifies you that it will handle your claim during the investigation, but it reserves the right to refuse coverage if the investigation finds you did intentionally hit the other car. The car insurance company will begin to pay the bills and the cost of the investigation, but they won’t be obligated to pay if it turns out later that the case isn't covered.
How will the car insurance company make a decision about my claim?
An investigation will generally begin, and accident reconstruction experts may be called in to determine what happened. Witnesses will be interviewed, and the police report and other evidence from the scene of the accident will also be reviewed. If the car insurance company determines that you did something that justifies a denial of coverage, the reservation of rights will apply and you will have to pay the claim yourself.
While auto insurance companies conduct investigations and may provide you with legal counsel, it is important to note that your interests and theirs may sometimes be at odds. It can be a good idea to get your own car accident attorney to help in this situation.