"Policyholder May Reject Reservation of Rights by Insurance Companies"," When a company is notified of the claim or suit the company should start performance of the contractual obligation which would include speaking with the insured, investigating, gathering facts, protecting evidence, hiring counsel for the insured, and responding to the claim.
This is a problem for the insured, but insurance companies don't have to keep promises they don't make.
Many companies simply use a reservation of rights as standard operating procedure.
Under a reservation of rights the insurance company is saying, we will defend for now but we can still sue you in another lawsuit to get a court to decide that we don't have to defend or indemnify you.
Unfortunately for the insured this means massive uncertainty, possible loss of the opportunity to settle, financial risk and additional litigation.
This can lead to ruinous financial consequences and bankruptcy for most people.
To gain leverage insurance companies try to squeeze the insured by including language that expands the reservation of rights not only to the reasons stated in the letter, but reserves the right to expand the reason for denial for any reason.
This means the insured doesn't know what is coming next.
This is particularly true if the insurance company has failed in its duty to settle before the insured made a formal demand for defense and indemnity.
Missouri law prevents insurance companies from using threats and leverage to bully insured's to accept a reservation of rights.
Although the insurance company still has the upper hand because of its financial strength and expertise, this gives the insured the option of walking away and controlling the litigation without the insurance company's involvement.
The insured can also settle the claim so that the plaintiff has the obligation to pursue the insurance company, so that the insured can settle can get out without any further risk.
These decisions can be particularly complex for businesses as the reservation of rights may have implications that are not immediately apparent and must be thought through with extreme care.