Understanding Reservation of Rights Letters: What Community Association Boards and Property Managers Need to Know

When a community association faces a lawsuit or liability claim, one of the first steps typically involves notifying the association’s insurance carrier. This triggers a process in which the insurance company evaluates the claim and determines what coverage, if any, applies under the association’s policy. During this evaluation, the insurer may issue a Reservation of Rights (RoR) letter, a document that often causes confusion or concern for board members and property managers.

What Is a Reservation of Rights (RoR) Letter?

A Reservation of Rights letter is a formal notice from an insurance company stating that it will begin defending a claim on behalf of the insured (in this case, the association), but it is reserving the right to later deny coverage for some or all parts of the claim.

The key point: the insurer is not admitting that coverage exists. The insurance company is agreeing to defend while it investigates.

Why Would an Insurer Issue an Reservation of Rights (RoR) Letter?

There are several reasons why an insurer might issue an RoR letter, including:

• Uncertainty about coverage: The claim might fall partially or entirely outside the scope of the insurance policy.
• Allegations of intentional misconduct: Most policies only cover negligent acts, not intentional or criminal conduct.
• Multiple parties involved: The insurer might cover the association but not individual board members or other parties named in the lawsuit.
• Late notice or policy exclusions: If the claim was not timely reported or falls under a specific exclusion, coverage may be limited or denied

What Does This Mean for the Community Association?

Receiving a Reservation of Rights (RoR) letter means the insurer is defending the claim, but may later refuse to pay for certain damages or legal judgments. Here’s what to keep in mind:

• You are not uninsured: The insurer is still providing a legal defense (at least for now), which is a major benefit and usually one of the most expensive parts of litigation.
• There is a potential for uncovered damages – If a judgment is entered for something not covered by the policy, the association could be responsible for those costs.
• Coverage disputes may follow: The insurer could file a separate “declaratory judgment” lawsuit asking the court to rule on whether it has a duty to provide coverage.

How Should Board Members and Property Managers Respond?

If your association receives a Reservation of Rights (RoR) letter:

• Do not ignore it: These letters are important legal documents.
• Consult your association’s attorney: The board may need independent legal advice to evaluate the impact of the letter and to determine if any conflict of interest exists.
• Keep your insurance agent informed: They can help review the policy and communicate with the carrier.

Legal Resource

Reservation of Rights letters are a common part of insurance claims, especially when litigation is involved. While they can seem intimidating, understanding their purpose helps community association boards and property managers make informed decisions. A well-managed response and coordinating with legal counsel and insurance professionals can help protect the association, helping to ensure any disputes over coverage are handled strategically.

Do not hesitate to contact our law firm if your association has questions about reservation of rights letters, community association liability, insurance defense, litigation, or other legal concerns.

Please call 855-537-0500 or visit www.ksnlaw.com.

Since 1983, KSN has been a legal resource for condominium, homeowner, and townhome associations. Additionally, we represent clients in real estate transactions, collections, landlord/tenant issues, and property tax appeals. We represent thousands of clients and community associations throughout the US with offices in several states including Florida, Illinois, Indiana, and Wisconsin.

Please note the material contained in this article is for educational and informational purposes only and does not constitute legal advice. No attorney-client relationship is established by your review or receipt of the information contained in this article. You should not act on the information discussed in this article without first obtaining legal advice from an attorney duly licensed to practice law in your State. While KSN has made every effort to include up-to-date information in this article, the law can change quickly. Accordingly, please understand that information discussed in this article may not yet reflect the most recent legal developments. Material is not guaranteed to be correct, complete, or up to date. KSN reserves the right to revise or update the information and statements of law discussed in the article at any time, without notice, and disclaims any liability for your use of information or statements of law discussed on the article, or the accessibility of the article generally. This article may be considered advertising in some jurisdictions under applicable law/s and/or ethical rules/regulations. © 2025 Kovitz Shifrin Nesbit, A Professional Corporation.