Sometimes when a lawsuit is filed against you, your insurance company will provide you with an attorney to represent you but indicate that this is an “excess claim” and that it is defending you under a “reservation of rights”. An excess claim is one in which the amount sought exceeds the policy limits. In such a situation, you are responsible for any amount awarded in excess of your policy limits.

A reservation of rights means that your insurance carrier is reserving its right to deny coverage and to withdraw its defense in the matter. This may be because it believes you are insured for one of the claims against you but not for others.

For example, if you sell and install a built-in oven that later explodes and injures someone, you may be sued for negligent installation and a breach of warranty. Your insurance carrier may believe you have coverage for the negligence claim but not for the warranty claim and thus will defend under a reservation of rights. If you win on the negligence claim and lose on the warranty claim, your insurance company may deny coverage.