The “Reservation of Rights”: Quite Possibly the Dirtiest Trick in Your Insurer’s Book

Gummy candy
Don’t Take Candy from Strangers (Photo credit: Wikipedia)

I’ve been asked by my clients many times, “What is this ‘Reservation of Rights’ my insurer keeps referring to?”

Tricky Terminology

A Reservation of Rights is a fancy way for your insurer to say they can go back on their word without any legal repercussions. Sounds pretty outrageous, right? It reminds me of the tricks we played when we were schoolchildren –

Billy:  Hey Sally, I want you to have my candy bar because I really like you.

Sally:  Really?!

Billy:  No. Psych! hahaha

*Sally cries*

Naughty behavior from schoolchildren is totally normal, but as we become adults, we have (hopefully) learned to behave by certain rules. Mostly, LAWS. But that doesn’t stop crafty corporations from looking for loopholes to those laws, and insurance companies have the resources to hire a staff of highly intelligent people to look for loopholes all day, every day.

Example of Language You Might See

Mr. Smith:

We are currently processing your claim for insurance benefits. While we have not determined the extent to which you are entitled to benefits under your policy, we are forwarding you $1,000 toward the value of your benefits, as a courtesy to you and subject to a Reservation of Rights.


Your Faithful Insurance Company


Mr. Smith:

We are not done processing your claim. Here is $1,000 because it is quite possible we are liable and we are trying to be nice while you are in need. However, if tomorrow we decide we are not liable, we will ask for that $1,000 back immediately. If you don’t give it back, we can pursue legal remedies against you.

That’s Right – If You Received Benefits Under a Reservation of Rights, You May Have to Pay it Back in FULL

When your insurer uses the language Reservation of Rights, they have “reserved the right” to change their minds. Legally, you are put on warning that even though they are paying you what appears to be part of your benefits, no court will hold that the money actually is a part of your benefits. What does this mean to you? Tread lightly. Any money or promises you have received in a letter that also says “Reservation of Rights” is only a courtesy, and can be changed at any time. And there will be nothing you can do about it.

So if you receive money under a Reservation of Rights, be very careful. You may have to pay it back. In other words, as our mothers told us, “Don’t take candy from strangers”. Especially insurance companies who might ask for that candy back.


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