OGC Op. No. 07-09-04

The Office of General Counsel issued the following opinion on September 6, 2007, representing the position of the New York State Insurance Department.

RE: Reservation of Rights

Question Presented:

Does the insurer's tendering of a "reservation of rights letter" create a conflict of interest for the insurer's attorney who represents an insured? If so, is there any way for an insured to protect his or her legal rights?


The New York Insurance Law does not specifically address "reservation of rights"; however, there is extensive case law on the subject.


The inquirer reports that the inquirer works for an insurance agency and have questions about "reservation of rights" letters. Specifically, the inquirer wants to know if there would be a conflict of interest for an attorney to represent an insured and the insurer concurrently, when the insurer has conflicting goals as reflected by having issued a "reservation of rights" letter. The inquirer asks if New York State allows an insured to choose its own defense counsel at the insurer's expense where there is a conflict of interest arising out of the insurer's "reservation of rights" statement. The inquirer further asks if the insured has the right to demand that the insurer withdraw its "reservation of rights" letter and provide an unqualified defense, or authorize the insured to obtain separate, independent counsel to protect its own rights at the expense of the insurer.


After a legal complaint has been filed against an insured, the insurer, in writing, often may serve the insured with a "reservation of rights" letter to preserve the insurer's right to affirm or deny coverage for the claims made in a third party complaint, against which the insurer agrees to defend the insured. ("Reservation of rights" letters are different from disclaimer letters, in which an insurer notifies the insured or other party of the insurer's intent to deny coverage or disclaim liability. See Office of General Counsel Opinions No. 2-10-2005.) This duty to defend may create a conflict, which is most obvious after the insurer issues a "reservation of rights" letter in which it attempts to protect itself from liability while fulfilling its duty to defend its insured.

Although there is no statute in New York that specifically addresses "reservation of rights," N.Y. Ins. Law § 2307(b) (McKinney's Supp. 2007), which requires insures to file insurance policies with the Superintendent for approval, is relevant to this inquiry. That statute reads in relevant part as follows: "no policy form shall be delivered or issued for delivery unless it has been filed with the superintendent and either he has approved it, or . . . not disapproved it as misleading or violative of public policy." As a general matter, the Superintendent will not approve a policy that contains "reservation of rights" language because it may tend to be misleading, and therefore violate public policy. But there is nothing in the Insurance Law that expressly precludes an insurer from issuing a reservation of rights letter.

Because these issues are complex and fact-specific, the Department advises the inquirer to seek advice from the inquirer's own attorney regarding the specific facts of this situation.

For further information one may contact, Senior Attorney Susan A. Dess at the New York City Office.