Hawaii Insurance License Practice Exam

What is typically sent to an insured when a claim is not reported promptly?

1. Endorsement

2. Exclusion

3. Reservation of Rights

4. Claim denial letter

The correct answer is: Reservation of Rights

In the context of insurance claims, when a claim is not reported promptly, a Reservation of Rights is often sent to inform the insured that the insurance company may still investigate the claim but reserves the right to decline coverage based on the delay in reporting. This notice serves to protect the insurer's interests, allowing them to maintain the ability to evaluate whether the late reporting affects their obligation to cover the claim. A Reservation of Rights effectively communicates that while the insurer is not denying the claim outright, they are also not accepting full responsibility at that moment due to the circumstances surrounding the late report. This may impact future decisions regarding the claim and outlines that the insurer may assert certain defenses if they decide to deny the claim later. In contrast, other options such as endorsements or exclusions do not directly address the delay in reporting a claim. An endorsement typically modifies the policy, and an exclusion specifies certain circumstances under which coverage is not provided. A claim denial letter is definitive and indicates that the claim is rejected outright, which is not the same as reserving the rights for further investigation. Thus, the Reservation of Rights is a crucial step in managing claims that are reported late and allows for a fair evaluation while safeguarding the interests of both the insured and the insurer.