When a claim has been submitted by an association to its insurance carrier, the carrier will evaluate the claim and the insurance policy to determine if there is coverage for the claim Once that is completed, the insurance carrier will issue one of the following letters:

• Covered Claim. The claim is covered under the policy. The carrier than assigns a law firm to defend the association If the claim goes to trial and a judgment is entered against the association, the carrier will pay the judgment up to its policy.
• Denial of Coverage. The claim is not covered by the policy. The most common example is when the insurance policy covers claims for negligence but the association is sued for breach of contract.
• Reservation of Rights. The carrier may agree to defend the association but may refuse to pay any judgments against the association if the matter goes to trial and the association loses. This happens most often when coverage of the underlying claim is questionable or uncertain under the association's insurance policy.

If the carrier issues a "denial of coverage" or a "reservation of rights" letter, the board of directors should have the association's legal counsel review the letter and the association's insurance policy to determine if the he or she agrees with the carrier's position. If legal counsel for the association disagrees, the board may want to dispute the carrier's position and make further demands for coverage. This will often cause the insurance carrier to reverse its position.

See Cumis Counsel.