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Insurance · Claim Investigation

What is the purpose of a 'reservation of rights' letter?

Reviewed by Jordan Morley, Editorial Lead at 247SimpleTests. Written by the 247SimpleTests Editorial Team from the official source material cited on every question.

Correct answer

To notify the insured that the insurer is investigating the claim while reserving the right to deny coverage if investigation reveals non-coverage

  1. A To reserve the insured's rights against a third party
  2. B To guarantee payment of a claim
  3. C To reserve the best hotel during a CAT deployment
  4. D To notify the insured that the insurer is investigating the claim while reserving the right to deny coverage if investigation reveals non-coverage

Why this is the answer

A reservation of rights (ROR) letter is sent when an adjuster is uncertain whether a claim is covered but investigates anyway. It preserves the insurer's right to later deny coverage without waiving that right through the act of investigating. Without an ROR, an insurer that investigates extensively might be held to have waived coverage defenses under estoppel principles.
Source: Adjuster Exam, Reservation of Rights

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About this topic: Claim Investigation

Claim investigation questions cover gathering evidence, taking statements, inspecting damage, establishing coverage and cause of loss, and spotting fraud indicators — while meeting the time limits set by unfair-claims-practice rules. This is one of 10 Insurance Adjuster questions on claim investigation, each with a full explanation on a single study page.

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