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