If a policyholder is sued, she can tender the defense of that suit to her insurance company.  If the insurance company believes that there may not be coverage, but cannot make a clear determination based upon the complaint filed, the insurer can issue a "reservation of rights" letter, agreeing to defend the policyholder for the time being, but reserving the right to deny coverage and withdraw the defense if it concludes that coverage is lacking once the claim becomes clearer.

Over the years, there have been many cases where the insurance company delayed, for various reasons, in sending the reservation of rights letter.  It has been unclear whether the "late" reservation of rights letter was still effective or not.  Recently, the Pennsylvania Superior Court clarified that late issuance of a reservation of rights letter can mean that the reservation is no longer effective.  Therefore, the policyholder is entitled to a full defense and indemnification for the claim.

In Erie Ins. Exch. v. Lobenthal, the Pennsylvania Superior Court ruled that just a 7 month delay in sending the reservation of rights letters was, under the circumstances in that case, enough of a delay to make the letter ineffective. 

Practical Advice:  If you, your client or insured receives a reservation of rights letter, it is not time to just put that letter in the file and ignore it.  There may be reasons to object to the reservation of rights, including that the reservation was untimely sent.