Many insurance coverage issues in the cannabis space are relatively new. From fire protection at farms to theft protection in transit, policyholders and insurers alike are facing novel situations applied to old policy language. In the insurance world, when a new or complicated situation presents itself, many insurers will conditionally accept coverage under a “reservation of rights.” This means that the insurer is not quite sure whether coverage should be available for any particular situation, but it is accepting responsibility for the insurance claim subject to further investigation.
For many policyholders, that can be quite confusing. What is the policyholder’s role at that point? Should the policyholder rely on coverage? And when will the policyholder know if the insurer’s answer is “yes” or “no” on coverage?
Broadly, an insurer’s acceptance of a claim under a reservation of rights signals that it is accepting responsibility for the claim while it does a little more work to figure out if the claim should be covered under a policy. The insurer will temporarily honor its obligations and protect the insured pending that additional work.
If an insurer notifies a policyholder of its intention to reserve rights, the insurer will assume the defense of the policyholder’s claim (hire a lawyer and defend the case against the policyholder) while investigating the substantive merits of the contractual coverage claim (determine if there’s any coverage to begin with). The policyholder then must remember its important contractual obligation to assist the insurer in its investigation of the claim, and in the defense of the underlying lawsuit. If a policyholder does not honor this obligation, an insurer may later use it as a defense to coverage.
A policyholder in receipt of an insurer reservation of rights should also not automatically count it as money in the bank. Although reputable insurers will hire good lawyers at reasonable rates to defend the policyholder’s lawsuit, if the insurer later determines that there was no coverage to begin with, the policyholder could be left with the bill for those lawyers. Should the issue arise of whether a settlement should occur under a reservation of rights, policyholders should also play an active role in determining whether the case should be settled, because they may later be able to seek reimbursement for that payment. Many rights and obligations are in flux during this period, and policyholders should stay tuned in to those rights and obligations from the start. Identifying and adhering to policy terms during an insurer’s investigation could later prove essential during a coverage determination in court.
There is no set timetable for the amount of time an insurer must provide the policyholder with a coverage determination, so long as the amount of time the insurer takes is “reasonable.” There are certain rights policyholders should protect, such as pressing their rights in settlement discussions, while keeping defenses to coverage in mind. As long as the policyholder diligently adheres to its obligations under the policy, it maintains the best arguments that coverage should be available at the end of the day.
Harris Bricken’s cannabis insurance coverage lawyers are available to discuss navigating the new realities of difficult coverage situations in the cannabis space. We have experience representing both policyholders and insurers in changing industries. If your insurer has reserved its rights, be sure to understand your rights and obligations under your insurance policy to maximize your chances for coverage.