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Here is a case from New Jersey about a successful legal malpractice case in which plaintiff recovers from one set of defendants, but has to take an assignment of insurance rights from the second set.  The insurance carrier started to defend under a reservation of rights, and then successfully withdrew.

"The governing legal principles are firmly established. An insurance company may respond to a claim against its insured by advising the insured that it is willing to defend under a reservation of rights or "non-waiver agreement." Merchants Indem. Corp. of N.Y. v. Eggleston, 37 N.J. 114, 126 (1962); Griggs v. Bertram, 88 N.J. 347, 357 (1982). Under such an agreement, the insurance company cannot be held ultimately responsible for payments otherwise required by the insurance policy. The agreement may be "inferred from the insured’s failure to reject the carrier’s offer to defend with a reservation of rights." Merchants, supra, 37 N.J. at 126. But "to spell out acquiescence by silence," the reservation of rights letter "must fairly inform the insured that the offer may be accepted or rejected." Id. at 127-28.

The first judge held that the letter in question failed the test set out in Merchants because it did not literally say you may "accept or reject" the offered defense. But the case does not stand for the proposition that its exact words have to be employed. Here, the letter "specifically disclaimed[ed] coverage for any . . . alleged act, error, or omission that occurred prior to the policy’s retroactive date" and for any member of RRMKK. The letter did not in any way reflect or even suggest a unilateral decision by Harleysville"

"An example of an improper unilateral declaration by an insurance company of its intention to defend while reserving the right to disclaim appears in Sneed v. Concord Insurance Co., 98 N.J. Super. 306, 314 (App. Div. 1967)(the company "’will continue to investigate this matter, but reserves any and all of its rights under the policy contract and may at any time, disclaim liability thereunder’"). By contrast, the language used by Harleysville comports with the reservation of rights letters sustained in Neilson v. American Mutual Liability Insurance Co. of Boston, 111 N. J. L. 345, 349 (E.& A. 1933)("’If this is not agreeable to you, we will return the summons and complaint for such action as you think advisable.’"). We perceive no difference between that statement and Harleysville’s statement that it was "prepared" to defend "if" the insureds were willing "to accept the reservation," particularly when the letter expressly declined coverage for the only period of time during which the insureds could have had responsibility for Kuhn’s actions and suggested that they might want "to retain personal counsel to protect their uninsured interests." In short, because Rubin and Kaplan had been properly notified of the reservation of rights and had not suffered any prejudice from the timing of Harleysville’s withdrawl, they had no enforceable claim to the benefits of the malpractice insurance policy.

Relying primarily on Merchants and Griggs, the Scottos and Rubin and Kaplan argue that even if the reservation of rights letter effectively preserved Harleysville’s rights, there is liability nevertheless because Harleysville did not disclaim for over three years and finally disclaimed while the malpractice case was still pending. Both of those cases are distinguishable because they involve untimely reservation of rights letters, which is not the case here. While those cases would be pertinent by inference if Rubin and Kaplan had suffered prejudice because of the timing of Harleysville’s withdrawal, there was no prejudice here since the "settlement" required nothing of Rubin and Kaplan other than an assignment of rights. "