Rhode Island Insurance Adjuster Exam

What does a reservation of rights indicate?

1. The insurer agrees to pay all claims

2. The insurer may dispute coverage for a claim

3. The claim will be automatically approved

4. The insured is denied all coverage

The correct answer is: The insurer may dispute coverage for a claim

A reservation of rights is a communication from the insurer to the insured indicating that while the insurer will proceed to defend against a claim, it reserves the right to dispute coverage for that claim later on. This means that the insurer is acknowledging the claim but also signaling that it has concerns regarding its obligation to pay based on the specifics of the policy or the nature of the claim itself. This communication serves a critical purpose in the claims process. By reserving rights, the insurer protects itself from being bound by an obligation to cover a claim which may ultimately not fall under the terms of the policy. For instance, if there are potential exclusions or limitations in the coverage that may apply, the insurer retains the right to later assert those defenses. The other choices imply a level of certainty regarding the payment of claims or the denial of coverage. For instance, stating that the insurer agrees to pay all claims suggests a full acceptance of liability, which is not the case with a reservation of rights. The automatic approval of a claim contradicts the nuanced legal position that a reservation of rights entails. Similarly, denying all coverage does not reflect the nature of a reservation of rights, as the insurer is still actively responding to the claim while questioning its validity.