Reservation of rights letter: your insurer will defend the NEMT claim but may refuse to pay it

What does a reservation of rights letter tell you?

A reservation of rights letter is a written notice that your insurer will handle and defend a claim but may still decide later that the policy does not pay it. It is not a denial. New York’s insurance department describes its purpose as keeping the insurer free to accept or reject coverage for the claims in a lawsuit, and it separates the letter from a disclaimer, which tells the insured the insurer intends to deny. It often follows a lawsuit against the insured, and the policy wording it relies on is the same wording covered in NEMT insurance exclusions.

It exists because of the defense clause. The standard ISO business auto form (edition CA 00 01 10 13) makes defense the insurer’s job for any suit that seeks damages the policy covers, and it sets no defense duty for a suit that seeks damages outside the policy. The same paragraph lets the insurer investigate and settle a claim as it considers appropriate. So the insurer chooses and pays the defense lawyer and steers the case, while the letter warns that it may later refuse to pay a judgment or settlement.

What the letter points to in a NEMT claim

The letter names the policy wording the insurer is relying on. Four provisions a NEMT letter can cite:

• A driver the policy does not cover. The driver was missing from a policy’s driver list, or a named driver exclusion applies.
• A van missing from the schedule. If symbol 7 sits next to liability on your declarations, only the vans described there are covered. The scheduled auto entry explains the symbols and the 30-day rule for new vans.
• An abuse or molestation exclusion. Many liability policies exclude these claims by endorsement. See abuse and molestation coverage.
• A condition you did not meet. Under the ISO form, coverage is owed only if you gave prompt notice, forwarded legal papers at once, cooperated, and made no payments or promises without the insurer’s consent.

How soon must the insurer send it?

It depends on the state, from a 30-day statutory deadline in Florida to no required letter at all in New York. Three examples:

• Florida. Under section 627.426(2), a liability insurer cannot deny coverage on a particular defense unless it sent the named insured a written reservation of rights within 30 days after it knew or should have known of that defense. Within 60 days after that notice or after receiving the summons and complaint, whichever is later, and no later than 30 days before trial, it must also refuse to defend in writing, get a nonwaiver agreement after full disclosure, or hire independent counsel both sides agree on. Whether that deadline reaches a particular exclusion in your policy is a question for a Florida coverage lawyer.
• Texas. An insurer that takes too long to say whether it covers a claim, or to reserve its rights in writing, commits an unfair settlement practice under Insurance Code 541.060(a)(4). The same section gives an injured third party no cause of action.
• New York. The Insurance Law does not require a reservation letter, and no regulation sets its wording. When an insurer disclaims coverage for a death or injury from an accident inside the state, under a liability policy issued or delivered there, it must tell the insured and the claimant in writing as soon as reasonably possible (Insurance Law 3420(d)(2)).

Can you choose your own defense lawyer?

Sometimes, depending on the state. Under California Civil Code 2860, an insurer must provide independent counsel whenever a conflict of interest creates that duty, unless the insured waives the right in writing. A conflict may exist when the insurer has reserved rights on an issue and the lawyer it first hired could steer how that issue is decided. Neither punitive damages allegations nor a claim above the policy limit creates a conflict by itself.

Here is an example. A suit says a driver mishandled a lift, which the policy covers, and also says he hurt the rider on purpose, which it excludes. How the defense lawyer develops the facts could decide which part of a verdict the insurer pays. That overlap is the kind the California statute treats as a possible conflict.

California also lets the insurer set limits on the lawyer you pick:

• Experience. At least five years of civil litigation practice, real defense experience in the field of the claim, and errors and omissions coverage.
• Fees. The insurer pays only the rates it actually pays its own lawyers for similar cases in that community, and fee disputes go to binding arbitration.

Florida’s statute offers a middle path: the insurer may retain independent counsel that both sides find acceptable, with fees set by agreement or by the court. New York’s insurance department says its law does not directly address the question, that case law is extensive, and that the person asking should get an attorney’s advice on the facts. In a state without a statute, a coverage lawyer in that state can tell you where the question stands.

What to do when the letter arrives

1. Send every legal paper on. The ISO form requires you to send the insurer copies of any demand, notice, summons, or legal paper right away, and to cooperate in the investigation and defense.
2. Make no promises. The same condition keeps you from taking on an obligation, paying anything, or running up expenses unless the insurer agrees, other than at your own expense. Tell drivers and dispatchers not to discuss fault with the family.
3. Answer in writing. Ask which facts and policy provisions the insurer relies on, which claims in the suit it says are not covered, and whether it will pay for a lawyer you choose. Florida’s statute already makes the insurer disclose the specific facts and provisions before a nonwaiver agreement, so it should have them ready.
4. Read before you sign. A nonwaiver agreement, or a waiver of independent counsel, gives something up. California’s statutory waiver is a signed statement that you were advised of your right to select independent counsel and give it up. Have a coverage lawyer read it first.
5. Tell the people who must be told. That means your agent, any umbrella insurer, and every broker or customer whose contract asks for notice of claims. MTM’s provider agreement tells the provider to report any civil claim against it or one of its drivers over agreement work right away, and it makes the provider pay to defend MTM if MTM is sued over the trips.

Trip records in HealthRide

Every trip in HealthRide records which driver and which van ran it, with timestamps, the miles the GPS recorded, and any signatures captured on screen. You can export the trip log to a spreadsheet or PDF from reports. Driver and vehicle licenses, insurance, and registrations sit in one registry in fleet and credentials, and reminders go out before any of them lapse.