Sometimes, when a liability insurer disputes coverage or is uncertain coverage applies, it will provide a defense to its insured under a “reservation of rights.” The insurer is reserving its rights to later deny coverage (as well as a continued defense), but is still providing a defense to its insured in the underlying litigation until such time it may determine there is no coverage.
But, watch out! The reservation of rights letter probably contains language that reserves the insurer’s right to recoup its defense costs (legal fees) if it later determines there is no coverage under the liability policy. In other words, if the insurer determines there is no coverage then there was also never a duty to defend its insured. Even though the insurer is providing a defense, it is doing so under a full reservation of its rights including its right to recoup legal costs / fees it paid in the defense of the claim. See Jim Black & Associates, Inc. v. Transcontinental Ins. Co., 932 So.2d 516 (Fla. 2d DCA 2006).
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