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Vol. 8 - Issue 11
December 18, 2019

Adjuster Punished For ROR Letter That Cited 73 Pages Of Policy Language


I’ll be the first to admit that I haven’t read too many literary classics.  Sure, I had to read some in high school.  But I hated it.  I turned to Cliffs Notes in lieu of the heavy lifting. 

While literary classics were not my thing in school, and certainly not later in life -- when nobody was making me read them -- it would be a whole different world if our greatest authors had been coverage lawyers and other professionals.  In that case, there are several literary classics that would surely be on my shelf.  I’ll talk about these over the next few issues.  For now let me start with this one.

In The Scarlet ROR Letter, Nathaniel Hawthorne shares the story of Hester Prynne, a claims adjuster, who wrote a 74-page reservation of rights letter, for a claim involving a plaintiff who tripped over an uneven pavement in front of a candy store.  The letter included 73 pages of verbatim policy language, including provisions from policies that the insured didn’t even have.  The letter concludes with “Based on the foregoing, we reserve all of our rights.”  You can never be too careful, Prynne tells her supervisor in chapter 2. 

The letter was challenged by the insured for not fairly informing it why the insurer, despite providing a defense, may not have an obligation to provide coverage for any damages awarded.  The court held that the reservation of rights letter, despite its length, did not meet the “fairly inform” standard.  However, the court did not estop the insurer from asserting any coverage defenses.  Instead, Prynne was required to wear an R on her shirt until the claim settled.

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