News & Events

“Generic,” “Cut-and-Paste” Reservation of Rights Letter Ineffective

Insureds won a round the other day when the South Carolina Supreme Court held that reservation of rights letters, which it characterized as nothing but “generic statements of potential non-coverage coupled with” large portions of the policies inserted “cut-and-paste” fashion, were ineffective to preserve the carrier’s coverage defenses.  The case is Harleysville Group Insurance v. Heritage Communities, Inc.

The letters, said the Court, “included no discussion of” the carrier’s coverage position, “or explanation of its reasons for relying thereon.”  The Court declared that an ROR letter, to be effective, must be “unambiguous, . . . specify[ing] in detail any and all bases upon which [the carrier] might contest coverage. . . .”

The South Carolina Supreme Court was particularly critical of the ROR letter for:

* failing to “inform the insureds that a conflict of interest may have have existed;”

* failing to warn the insureds that the carrier’s “intent to pursue a declaratory judgement action” in the event of adverse verdicts in the underlying suits; and

* failing to advise the insureds “that they should protect their interests by requesting an appropriate verdict” in the underlying suits, that is, special interrogatories that would make it easier to determine which parts, if any, of an adverse verdict were covered.

The Court rounded out its discussion of the ROR letter by proclaiming that, at least when the carrier controls the defense, it owes the insured “a high fiduciary duty,” which requires the carrier to “sacrifice its interests in favor of those of the insured. . . .” (brackets and internal quotation marks omitted; emphasis supplied by Harleysville Court).

Patrick Henry, decrying the Stamp Act in a 1765 speech to the Virginia House of Burgesses, famously proclaimed “Caesar had his Brutus!  Charles the First, His Cromwell! And George the Third” — dramatic pause — “may profit by their example.”  Insurers everywhere may profit by the example given in Harleysville Group Insurance v. Heritage Communities, Inc.


by Robert ("Bob") M. Frey

certificate of insurance