When an individual or business with a liability insurance policy is sued, the individual or business (the insured) will generally tender the lawsuit to its insurance company (the insurer) by providing a copy of the lawsuit and asking the insurer to defend the insured.

It is not uncommon in this situation for the insurer to take control of the defense of the lawsuit, but to send a reservation of rights (ROR) letter to the insured explaining why the insurer may ultimately deny coverage for the claims asserted in the lawsuit—based on one or more exclusions from coverage in the insurance policy, for example.

Having reserved its right to deny coverage, the insurer may, at any time, deny the claim for insurance coverage and discontinue paying the lawyer to defend the lawsuit—leaving the insured to hire a lawyer at its own expense to defend the lawsuit.

Insurance coverage and claims issues—including ROR letters and the related issue of the insured’s right to independent counsel—are often complex and an insured is usually well-served by promptly discussing these matters with an experienced insurance coverage lawyer.

In Colorado, when an individual or business is sued and has liability insurance, they typically notify their insurance company of the lawsuit to request defense under their policy. The insurer may agree to defend the lawsuit but often issues a Reservation of Rights (ROR) letter. This letter informs the insured that the insurer might not cover the claims due to certain policy exclusions. If the insurer later determines that the claim is not covered, they can cease funding the defense, and the insured would then need to pay for their own attorney. The insured's right to independent counsel can arise if there is a conflict of interest between the insurer's defense and the insured's best interests. Due to the complexity of insurance coverage and claims issues, including the implications of ROR letters, it is advisable for the insured to consult with an attorney who specializes in insurance coverage to navigate these matters.