Lockton backs Reservation of Rights clause

Lockton is recommending its clients to use the Airmic Reservation of Rights (RoR) clause to help them when making large claims. They are the first major insurance broker to do so, a move that has been strongly welcomed by the association.

The clause, drafted by Herbert Smith Freehills, is designed to counter what many members see as the excessive use of RoR by insurers when large claims are made. Inserting the wording into insurance contracts is a way of restricting the use of this practice, enforcing a 90-day cooling off period and helping all parties to proceed in a structured way.

32% of respondents to an Airmic survey last year said that they had received a Reservation of Rights letter from their insurer which they believed had been issued unfairly, and only 43% of those recieving a Reservation of Rights letter indicated that the matter had not been resolved to their satisfaction. 

“Our experience is that insurers are reserving rights far too readily; some appearing to adopt it as the default response in relation to any high-value or complex claim notification. The situation is undoubtedly exacerbated by the on-going economic conditions,” said Graham Wynes, a Claims Advocate at Lockton.

“The suggestion by Airmic to add a clause to insurance contracts is a positive step in giving clients greater certainty around the reservation process, as well as speeding up the negotiations. In our view, the clause is fair and reasonable and we are recommending to clients that they add this to the contract, irrespective of the limit.”

By issuing RoR, insurers indicate that they may be unwilling to accept liability for a claim. Whilst a legitimate tool under some circumstances, Airmic argues that it is over-used. Once rights have been reserved, it normally leads to escalating legal costs and makes it more difficult for matters to be settled informally.