What’s wrong about the Reservation of Rights?

Many of you will be aware of the recent “Statement of Principles” issued by the Association of Insurance and Risk Managers (AIRMIC), which is intended to act as a guide for the use by insurers of Reservation of Rights.

The Statement is in effect a voluntary code agreed with the Insurance industry. It provides that, for the first 90 days following the notification of a loss which it is reasonably thought will exceed £2.5m: –

The insurer will not pre-emptively initiate any formal dispute resolution proceedings or issue any Reservations of Rights.
After notification, the insurer and insured will communicate on a “without prejudice” basis in relation to policy liability, the required claim information and the timetable for resolution of the investigation.
If the above cannot be determined, then the insurer can proceed without reference to the Statement of Principles.

It is said that one of the benefits of this approach is that it prevents an adversarial relationship developing between insurer and insured, thus increasing the prospect of a commercial settlement. We shall see!

The Statement also provides for the insurer to conclude at its absolute discretion that the principles advocated are not appropriate for a particular loss. This flexibility is intended to increase adherence to the Statement of Principles, but in practice is likely to diminish its impact.

Please contact us if you would like to discuss any of the issues raised, by emailing roger.franklin@edwincoe.com.

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