I recently filed a sinkhole claim, which is being investigated under a “reservation of rights” letter. It lists several exclusions under my policy but never tells me whether my claim is being covered or not. What is this?

An insurance company is obligated to inform an insured as soon as practical that there may be a defense to a claim, which may bar coverage. The timing of the letter is based on when the insurer learns of the underlying facts supporting the exclusion. Under Florida law, a reservation of rights letter must do several things:

  1. Include the policy language in play
  2. State the purpose of the letter
  3. Summarize the facts leading to the reservation
  4. Quote the exclusionary language

In very simple terms, a reservation of rights letter serves the insurance company by saying, “We are looking into your claim, but it may not be covered.” Thus, they are seeking to limit any argument later that their conduct created a basis for insurance coverage for an otherwise excluded claim.

The short answer to your question is No, the reservation of rights letter for a sinkhole claim is not the same as a denial letter. Instead, the insurance company is telling you that its continued investigation into your claim, by hiring an engineering firm, cannot be construed as a waiver of any policy defense. Settlement damage to a home is excluded unless it is sinkhole activity. If it is something else, it may be excluded, based upon the language quoted in your letter.

Sometimes reservation letters get a bit carried away and should trigger a response. For example, if the letter includes statements about your conduct or your failure to act, you should respond and ask the basis for them to include such language. While a reservation of rights letter is comprehensive, it cannot be a waste basket of potential defenses, most of which have no relationship to your claim. Instead, it is meant to put you on notice of the real issues of concern.

Read my tips on filing a sinkhole claim.

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