Melissa Dewey Brumback, a partner at North Carolina-based Ragsdale Liggett PLLC, recently tackled the subject of what to do as design professional if you have received a “Reservation of Rights” letter from your insurer as part of a claim against your firm. As she explains:
Reservation of Rights (ROR) letters are sent for a variety of reasons- most notably, when some portion of the construction lawsuit against you is not covered under your E&O policy. The letter must state the reason(s) that the ROR is being issued.
With the ROR, the insurance company is telling you that it reserves the right to withdraw from your defense and/or deny payment of damages at a later date, depending upon how facts in the case develop. The notice is intended to let you know that there *may* be issues later, and to put you notice that you have the right to hire your own lawyer (at your own expense) to protect yourself from that future potential risk.
In a follow-up post, Brumback focuses on a question many A/E/C professionals involved in disputes have: “Do I really need my own lawyer if the insurer is giving me one?” Brumback’s response is worth paying attention to:
The short answer is that you do not *have* to hire your own lawyer. But, it can be very useful. And, it can be done economically so you don’t have to break the piggy bank. You see, if you hire your own lawyer, they can be “back up” and simply monitor the lawsuit, while the insurance-retained lawyer does the yeoman’s work. That way, if the insurance carrier begins to make noise about filing a declaratory judgment to deny the claim, you have your own lawyer already in place, knowledgeable about what’s happened in the case from the get-go. But if the insurance company never “pulls the trigger” on denying the claim, then your private lawyer’s involvement (and bill) will be minimal.