When presented with a new claim, insurance companies often issue a reservation of rights letter to the policyholder. Alternatively, some insurers will issue a non-waiver agreement. In issuing a non-waiver agreement, insurers are attempting to preserve potential coverage defenses by getting the policyholder to agree that the insurer may undertake an investigation of the claim or defend the policyholder while preserving the right to later contest coverage. A typical non-waiver agreement may read:
It is hereby agreed by and between the Insured and the Company that any action
taken by the Company, by and through its representatives, and at such time and
in such manner as it deems advisable, in investigating said accident, shall not
operate in any way as a waiver, or invalidate any of the conditions of said policy nor
any of the rights of either party here to under said policy; and in the event any suit
has been or shall be filed against the Insured growing out of a said accident or
occurrence should the Company elect to defend said suit, such defense by it shall
not be construed as a waiver of any of the conditions of said policy.
Nothing herein shall be construed as a waiver of any rights which the Insured has under
See Shelby Steel Fabricators Inc. v. United States Fid. & Guar. Co., 569 So.2d 309, 311 (Ala. 1990) (the non-waiver agreement language quoted in this case).
Unlike reservation of rights letters, non-waiver agreements are bilateral. In agreeing to a non-waiver agreement, it can be argued that the policyholder consents to the terms of the insurance company's agreement to defend. Policyholders are under no obligation to enter into a non-waiver agreement with their insurance company and an insurance company cannot force the policyholder to do so in order to provide a defense.
When a policyholder receives a non-waiver agreement from an insurance company, the policyholder should decline to enter into the non-waiver agreement. Then, the policyholder should request that the insurance company issue a reservation of rights letter that informs the policyholder, in detail, of the insurance company's coverage position.