Our HOA's insurer sent a reservation of rights letter. What does it mean and what should the board do?

By OurHOA · General information · Revised October 18, 2026

What a reservation of rights letter from the HOA insurer means, the board's first steps, a sample reply, independent counsel, and TX, FL and CO claim deadlines.

Part of the HOA board handbook: vendors, projects and upkeep.

The short answer

A reservation of rights letter says the insurer will keep handling the claim or defending the lawsuit for now, but may later refuse to pay some or all of it for the reasons the letter lists. It is not a denial and it is not an acceptance. Read it as notice that part of this loss could land on the association's own budget. The board's job in the next two weeks is to read the letter against the full policy, get the association's attorney involved, answer in writing, and keep cooperating with the claim. Do not argue coverage with the adjuster on the phone, and do not let the letter sit in a manager's inbox while deadlines run. Rules vary by state, by the policy wording and by your governing documents. This guide is general education, not legal advice.

Why insurers send these letters

In many states, an insurer that pays or defends a claim while sitting on a known reason to deny it can lose the right to raise that reason later. The letter protects the insurer from that result. It does not mean the adjuster thinks the association did something wrong. In association claims, the reasons usually fall into a few groups. Late notice: a resident fell by the pool in March and the board first reported it when the lawsuit arrived in October. Mixed lawsuits: an owner sues for money and also asks a court to make the board approve a fence or undo a fine, and the policy may cover only part of that. Property damage the policy may exclude, such as long-term leaks, wear, mold or construction defects. Questions about who is an insured, such as a former director or a committee volunteer. And losses that may straddle two policy years, so two carriers point at each other. Find your claim in that list, because it tells you what evidence will matter.

What to do in the first week

Work through these steps in order. 1. Write down the date the letter arrived and how it was delivered. In Florida the insurer's own deadlines run from these dates. 2. Ask the agent for a complete copy of every policy that might apply, with all endorsements, for each policy year involved. The declarations page is not enough. That usually means the package or general liability policy, the directors and officers policy, and any umbrella. 3. Read the letter line by line and make a short table: each claim or part of the loss, the policy provision the insurer cites, what it wants from the association, and any date it gives. 4. Send the letter and the policies to the association's attorney. If that lawyer does not handle coverage disputes, ask for a referral to one who does. The lawyer the insurer hired to defend a lawsuit is not the person to advise the association on coverage against that same insurer. 5. Brief the whole board. Discuss the details in a closed or executive session if your state's open meeting rules allow one for legal advice and pending claims, and keep director email about it short and factual. 6. Report the claim to any other carrier that might respond, including the umbrella and the prior year's carrier if timing is in question. 7. Keep sending the documents the adjuster asks for. Most policies have a cooperation clause, and a board that goes silent hands the insurer a new reason to deny.

A reply the board can adapt

Answer in writing, signed by the president or the attorney, and keep a copy in the claim file. Something like this works as a starting point for counsel to edit: 'The Association acknowledges your letter dated [date] reserving rights under policy [number] for claim [number]. The Association does not agree with the coverage positions in the letter and does not waive any rights under the policy or applicable law. Please identify the facts you rely on for each reservation, provide a complete certified copy of the policy for the [year] policy period, and confirm whether you will pay for independent counsel selected by the Association. The Association will continue to cooperate with your investigation. Please send all communication about this claim to [name, title, email].' If the insurer sends a nonwaiver agreement for the board to sign, do not sign it at a meeting because the adjuster says it is routine. It is a contract about the association's rights, and the attorney should read it first.

Who controls the defense when coverage is in question

When an insurer defends a lawsuit under a reservation of rights, the defense lawyer it hires represents the association, but the insurer paying that lawyer may gain if the case ends in a way the policy excludes. Many courts allow the insured to pick independent counsel at the insurer's expense when that conflict is real, though the tests and the procedure differ from state to state. Florida puts the rules for liability insurers in the statute. Under section 627.426(2), the insurer must give the named insured written notice of its reservation within 30 days after it knew or should have known of the coverage defense, sent by a trackable mail method or hand delivery. Then, within 60 days of that notice or of receiving the summons and complaint, whichever is later, and never later than 30 days before trial, it must do one of three things: refuse to defend in writing, get a nonwaiver agreement after fully disclosing the facts and policy provisions behind its position, or retain independent counsel that both sides agree on, with reasonable fees agreed or set by a court. A Florida board should put both dates on the calendar the day the letter arrives. The Texas and Colorado statutes cited in this guide have no section like this one, so in those states the answer comes from the policy wording and court decisions, which is one more reason to have coverage counsel read the letter.

Property claims and the deadlines insurers face

Reservation letters also show up on the association's own property claims, such as a roof or a burst pipe in a clubhouse. The letter does not pay or deny the claim, so keep tracking the insurer's deadlines in your claim log. Texas. Insurance Code chapter 542 covers first-party claims. Within 15 days after notice of the claim, the insurer must acknowledge it, start its investigation and ask for the items it reasonably needs (section 542.055). It must accept or reject the claim in writing within 15 business days after receiving everything it asked for, and a rejection must state its reasons. If it needs more time it must say why, and then decide within 45 days (section 542.056). Once it accepts, payment is due within 5 business days (section 542.057). If payment is delayed more than 60 days after it has all the items, section 542.060 adds 18 percent annual interest and attorney fees, with a different rate for suits under chapter 542A. Florida. For the property claims section 627.70131 covers, the insurer must acknowledge communications about the claim within 7 days, begin its investigation within 7 days after proof of loss, inspect within 30 days if an inspection is needed, and pay or deny within 60 days after notice, with a written explanation of the policy basis for any denial. Colorado. Section 10-3-1115 bars an insurer from unreasonably delaying or denying payment of a claim for benefits owed to its own insured, and an association counts. A delay or denial is unreasonable if it has no reasonable basis. Section 10-3-1116 lets the insured sue for reasonable attorney fees, court costs and two times the covered benefit. The injured person suing the association under a liability policy cannot use these sections.

A sample timeline

Day 0: the letter arrives. The president logs it and sends it to the attorney and the agent the same day. Day 3: the agent's request for certified policies is out. Day 7: the board meets in closed session with counsel. Day 10: the written reply goes to the insurer. Day 14: other carriers have notice. After that, ask the adjuster for a status update every 30 days in writing, and note each response. When the insurer issues its final coverage position, the board decides with counsel whether to accept it, negotiate, use the policy's appraisal clause on a property claim if there is one, file a complaint with the state insurance regulator, or sue. Meanwhile the treasurer should estimate the uncovered share, at minimum the deductible and the disputed part of the claim, and tell the board how the budget or reserves would absorb it.

Mistakes boards make

Reading the letter as a denial and refusing to cooperate, or as good news and filing it away. Reporting late in the first place, which is the reservation the board controls most: send every incident report, demand letter and lawsuit to the agent the week it arrives, even if it looks small. Signing a nonwaiver agreement without a lawyer reading it. Asking the insurer-appointed defense lawyer whether the claim is covered. Settling with the owner or the injured person, or admitting fault in an email to owners, without the insurer's written consent, which most liability policies require. Telling owners too much: a short note that the claim is in process and the board has counsel is enough until there is a coverage decision that affects the budget. Our guides on director liability insurance and indemnification and on what to do when an owner threatens to sue the HOA cover the policies and the lawsuits that most often produce these letters.

Sources

These guides are general education for HOA boards and residents, not legal, tax, or financial advice. Rules vary by state and by your community's governing documents - check with a professional for your situation.

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