What is a reservation of rights letter from an insurer and what does it mean in Ontario?

A reservation of rights letter is written notice from your insurer that it will defend you against a lawsuit for now, while formally preserving its right to later deny that it owes any payment (indemnity) if the claim turns out not to be covered. Insurers send these when the pleadings could potentially trigger coverage - so a defence is owed - but there's a real, open question about whether coverage will ultimately apply once the facts are established, often because of a possible exclusion or a coverage condition that may or may not be met.

The letter typically identifies the specific coverage issues the insurer is flagging, so it's worth reading closely rather than treating the defence itself as confirmation that your claim is covered. It doesn't reduce the quality of defence you're entitled to, but it does mean the coverage question remains genuinely open and could result in a later denial, or even a separate coverage action to resolve it. If the issues raised create a real conflict between your interests and the insurer's - for example, if a fact the insurer wants proven would help it but hurt your coverage - you may be entitled to independent counsel rather than insurer-appointed counsel.