Reservation of rights

Reservation of rights is a legal concept in contract law that allows a party to a contract to retain certain rights, even while performing under the contract. This concept is often used in situations where a party wants to perform its obligations under a contract but does not want to waive any rights or defenses it may have.

Overview

The reservation of rights is typically communicated through a written notice, often referred to as a "reservation of rights letter." This letter informs the other party that the sender is performing under the contract but is reserving the right to assert any claims or defenses in the future. This can be particularly important in insurance contracts, where an insurer may provide a defense to a claim while reserving the right to deny coverage later.

Usage in Insurance

In the context of insurance, a reservation of rights letter is sent by an insurer to an insured party. This letter indicates that the insurer will provide a defense to the insured in a lawsuit but reserves the right to deny coverage for the claim. This allows the insurer to fulfill its duty to defend while preserving its ability to contest coverage.

Legal Implications

The reservation of rights can have significant legal implications. It allows a party to perform its contractual obligations without waiving any potential claims or defenses. However, the effectiveness of a reservation of rights can depend on the specific language used and the jurisdiction in which it is asserted. Courts may scrutinize the language of the reservation to determine whether it effectively preserves the party's rights.

Examples

1. Insurance Claims: An insurer may issue a reservation of rights letter to an insured party, indicating that while it will defend the insured in a lawsuit, it reserves the right to deny coverage based on policy exclusions. 2. Contract Disputes: A contractor may continue to perform work under a contract while reserving the right to claim additional compensation for unforeseen conditions.

Related Concepts

• Waiver (law)
• Estoppel
• Contractual terms in English law
• Insurance law

See Also

• Contract law
• Insurance
• Legal defense
• Policy exclusion