Reservation of Rights Letter in Massachusetts: What It Means and Your Right to Choose Your Own Lawyer

An insurance company “reserves its rights” when it agrees to defend you against a claim but keeps open the option to deny coverage later. In plain terms, it is hedging its bet: paying for your defense now while preserving its argument that the policy does not cover the claim. Under Massachusetts law, however, when your insurer does that it has a conflict of interest and the remedy is that you get to make it choose one of two options: either it drops the reservation or you get to select and hire your own lawyer. Critically, not only do you get to hire your own lawyer, but your insurance company also still must pay that lawyer’s reasonable fees at market rates. The key is that you have to assert that right. If you sit on it, you can lose it.

What does a reservation of rights letter mean?

A reservation of rights letter is your insurer telling you two things at once. We will defend you for now at least, but we may not cover you in the end. Contractors and business owners usually get one a few weeks after they send a lawsuit or demand letter to their commercial general liability carrier.

The letter will list the exclusions and conditions the insurer thinks may apply. It may tell you which law firm the insurer has handpicked to defend you, without your input. Some letters go further and say the insurer will not pay for certain claims, or that it intends to seek reimbursement of what it spends on your defense.

Most clients read the letter as good news, because someone else is paying for the lawyer. We read it as a warning. It is also the point where Massachusetts law gives you real leverage, and what you do in the first few weeks matters.

Why does a reservation of rights create a conflict of interest?

Once your insurer reserves its rights, its interests and yours split. You want the case won, or settled within your coverage. Your insurer may come out ahead if the facts develop in a way that puts the claim outside the policy.

That matters because the defense lawyer shapes the facts. Which claims get pressed, what gets said at a deposition, and how the damages get described can all decide whether a judgment is covered. A lawyer hired, directed, and paid on the insurer’s terms works inside that tension, even with the best intentions.

Massachusetts courts recognized the problem and potential for a conflict of interest decades ago. Their answer was to let the insured decide who controls the defense.

Can I choose my own lawyer when my insurer reserves its rights?

In most cases, yes. The Supreme Judicial Court has held that when an insurer defends under a reservation of rights and the insured objects, the insured can make the insurer choose. It can give up the reservation, or it can give up control of the defense and pay for the insured’s lawyer. Herbert A. Sullivan, Inc. v. Utica Mutual Insurance Co., 439 Mass. 387 (2003). The rule goes back to Magoun v. Liberty Mutual Insurance Co., 346 Mass. 677 (1964), and Three Sons, Inc. v. Phoenix Insurance Co., 357 Mass. 271 (1970), where the court said an insurer cannot reserve its rights but also insist it gets to run the defense and control strategy. The Appeals Court reaffirmed it in 2023 in John Moriarty & Associates v. Zurich American Insurance Co., 102 Mass. App. Ct. 474.

The flip side matters too. An insurer that defends with no reservation generally keeps control of the defense. An insured that walks away from that defense without a real conflict can end up paying its own lawyer. OneBeacon America Insurance Co. v. Celanese Corp., 94 Mass. App. Ct. 382 (2017).

This is an incredibly important and powerful right that insureds have but many do not understand it and many of their lawyers may not, either. The right is also not automatic. In Sullivan, the insured lost it because it never insisted on its own counsel. If you want your own lawyer, say so in writing, say it early, and be specific.

Does the insurance company still have to pay my lawyer?

Yes. Choosing your own lawyer does not shift the cost of the defense to you. The insurer that reserved its rights still owes your lawyer’s reasonable fees and costs.

Insurers often try to pay independent counsel the discounted rate they pay their own panel firms. The Appeals Court rejected that in Northern Security Insurance Co. v. R.H. Realty Trust, 78 Mass. App. Ct. 691 (2011). The measure is a reasonable market rate, not the panel rate, unless your lawyer actually agreed to something else.

The insurer also has to pay on time. In Northern Security, the insurer’s long delay in paying fees it did not even dispute, together with its other conduct, supported liability under Chapter 93A. In John Moriarty, the Appeals Court held that a seven-month failure to pay defense invoices stated claims under Chapters 93A and 176D, even though the insurer eventually paid.

Do the insurer’s billing guidelines apply to my lawyer?

Insurers routinely send defense counsel litigation management and billing guidelines. The guidelines cap rates, allow one lawyer per deposition, refuse to pay for internal conferences, and require approval before motions or experts. When the insurer has reserved its rights, it is our view that those rules do not bind the lawyer you chose.

The guidelines are not part of your policy, and a reservation of rights letter cannot add conditions to the policy. They are the terms of the insurer’s arrangement with its own panel firms. Massachusetts measures what the insurer owes independent counsel by reasonableness, and Northern Security made exactly that point about panel rates. No Massachusetts appellate court has squarely ruled on billing guidelines, but the same reasoning applies.

The ethics rules point the same way. Under Rules 1.8(f) and 5.4(c) of the Massachusetts Rules of Professional Conduct, a lawyer paid by someone other than the client may not let the payer interfere with the lawyer’s independent judgment. Staffing, strategy, and preparation are decisions for you and your lawyer, not an insurance company’s claims department.

What should I do after receiving a reservation of rights letter?

Start by reading the letter next to your policy. Figure out which exclusions the insurer is relying on and which claims in the lawsuit they target, and note any deadline the letter sets for a response.

Do not sign anything agreeing to the reservation, or agreeing to pay back defense costs, before you talk to a lawyer. Massachusetts courts have been skeptical of insurers recouping what they spent on a defense, and there is no reason to hand your carrier that argument.

Then decide who is going to run your defense. If you want your own lawyer, your lawyer should tell the insurer in writing, promptly, and require it to confirm it will pay that lawyer’s reasonable fees. Keep every letter, email, and invoice that passes between you, your lawyer, and the insurer. If payment problems come later, and they often do, that record is what protects you.

Finally, keep the defense and the coverage question connected. How your case is defended affects whether it is covered, and you want counsel who understands both sides of that.

Frequently asked questions

Is a reservation of rights letter the same as a denial of coverage?

No. Your insurer is still defending you. It is keeping open its ability to deny coverage later for some or all of the claims.

Do I have to accept the lawyer my insurer appoints?

Not necessarily. If the insurer defends under a reservation of rights, Massachusetts law generally lets you require it to drop the reservation or let you choose your own lawyer at the insurer’s expense.

Who pays my independent counsel?

The insurer pays reasonable fees and costs. Massachusetts courts measure the hourly rate by the market, not by the insurer’s discounted panel rate.

Does this apply to contractors and construction claims?

Yes. Reservations of rights are common on construction defect claims under commercial general liability policies, because those policies often exclude damage to the contractor’s own work.

What if my insurer will not pay, or keeps delaying?

An insurer that sits on defense invoices it does not dispute can face liability under Chapters 93A and 176D. Talk to coverage counsel about your options.

Talk to Cole Law Partners

We defend Massachusetts contractors, developers, and businesses in nearly every type of construction dispute, such as claims alleging defective work, delay damages, and property damage, frequently under reservations of rights, and we handle the coverage side at the same time. If your insurer has just sent you a reservation of rights letter, call us before you respond and before the defense gets going. The first few weeks are when these rights are easiest to protect. You can reach me directly at jncole@colelp.com.

Written by J. Nathan Cole, Cole Law Partners, P.C., 100 Cambridge Street, 14th Floor, Boston, Massachusetts. This article is general information about Massachusetts law as of October 2026. It is not legal advice, and reading it does not create an attorney-client relationship. Every case turns on its own policy language and facts.