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Contractors: Did you receive a Reservation of Rights Letter (ROR)?

Contractors in Louisiana are required to carry general liability insurance. Those insurance requirements, however, likely provide less coverage than you might expect. When a contractor finds themself in a scenario where they need to make a claim, they do so expecting their insurance company to handle the defense and payment of any damages. Unfortunately, in construction, this is often not the result.

In fact, what is more likely to occur when a contractor makes a claim on its insurance policy is they will receive a letter titled Reservation of Right Letter. While seemingly indiscreet and a non-issue, the contents are the ROR are quite substantive and restrictive. The reason they may feel indiscreet is because oftentimes, your insurance company will appoint a lawyer to represent your interests. However, that appointed attorney is not permitted or compensated to protect your interests, namely your uninsured interests. The uninsured interests stated in the ROR.

The purpose of the reservation of rights letter is to notify the contractor that they determined either none or not all of the claims are covered by insurance, but that they will pay your attorney fees for a defense unless it is concluded no claims are covered.

A standard reservation of rights letter will contain a recitation of the following:

  • pleadings or lawsuit filed against your construction company;
  • material facts analyzed in order to form its coverage opinion;
  • pertinent insurance policy language including commercial liability coverage form language;
  • exclusions for which they apply to the material facts;
  • insurance policy limits; and
  • its reservation of rights opinion.

Choice of Counsel or Attorney

When an insurance company sends its reservation of rights, it does so expecting you to agree to its appointed counsel. However, it is important that general contractors know, they have a right to select their own counsel or attorney and should do so.

Attorney Fees and Costs Paid by Insurance Company

In addition to a contractor being able to select its own attorney, the insurance company shall honor its insured’s right to its duty to defend. Meaning, while a contractor ultimately might not be afforded coverage for the claims, its insurance company will have a duty to pay its attorney fees and costs until then.

It is important for a construction company and contractor to know their rights when they receive a reservation of rights.  If you’ve received a reservation of rights letter, all Favret Carrier Cronvich to discuss your options.




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