Reservation of Rights Letter and Non-Waiver Agreement Drafting Checklist

Summary

This checklist highlights critical issues about drafting reservation of rights letters and non-waiver agreements. The reservation of rights letter is unilateral (i.e., the evaluation is made solely by the insurer) while a non-waiver agreement is bilateral. Both letters give policyholders notice of the insurer's position that all or part of a first or third-party claim may not be covered and that the defense of a third-party claim may be withdrawn. Some insurance companies use only reservation of rights letters while some also use non-waiver agreements. Non-waiver agreements do not presume that the insured agrees with the foundation of the insurer’s position, but they do provide evidence that the insured is aware of the position because the insured is required to sign it. If the insured refuses to sign, the insurer may issue a reservation of rights letter on the same basis. Topics covered include determining if coverage exists for a claim, contents of a reservation of rights letter and a non-waiver agreement, and the insurer's right to control the defense, settle, or go to trial.