This topic of study provides the insurance professional with an in depth practical look at third party liability insurance. It is defined in simple terms to allow the student a greater knowledge of its intent. The topic looks at the exclusions unique to this section as well as additional agreements of the insurer and agreements of the insured. Bill 198 has seen the threshold defined in regulations passed in September 2003 along with the expansion of tort to include medical and health care expenses subject to the verbal threshold.
What Is Third Party Liability Insurance? [top]
Third party liability insurance is designed to provide financial protection for the operator and or owner of a motor vehicle. This operator and or owner is defined as either a named insured or just insured in the policy. It could be the registered owner of the automobile or it can be someone that has been given permission to operate the automobile.
When operating or merely owning an automobile an insured person could be held responsible in causing damages to someone. This damage could come in the form of Bodily Injury, Death or perhaps causing just property damage to another party.
Third party liability is there to protect the insured and anyone else given permission to operate the insured vehicle against lawsuits….which may lead to legal liability imposed by law due to the ownership or operation of the vehicle in a negligent matter and causing damages to a third party. Lets look at some examples:
John the registered owner of an automobile gives permission to his next door neighbour Bill, age 18 to drive his new 2000 Firehawk. Bill being a bit of a reckless driver decides that he’s going to take this vehicle on the highway and give it a good run. Because of the rush hour crowd, traffic slows down but Bill doesn’t. He accidentaly rear ends the person in front of him. Bill causes substantial damage to the other automobile and the other driver sustains injuries. Lets call the other driver the “Third Party”.
Since the third party has sustained some sort of property damage and injuries, the third party is by law entitled to take legal action against whoever he thinks is the guilty person. He will allege that Bill was negligent in the operation of the vehicle. He will also allege that John is also negligent for allowing Bill to operate this vehicle. Notwithstanding Ontario’s DCPD and AB benefits and Rights to Sue which are taken up in another Mini Series, Bill and John will require a legal defense and ultimately will be required by law to compensate the Third Party for all damages. If John carried a policy of Third Party Liability Insurance, his insurance company would protect and defend him and anyone else (Bill) who operated the vehicle with John’s consent.
In Ontario an owner of a vehicle is required by law to carry Third Party Liability Insurance with a minimum limit of $200,000 if the vehicle is to be licensed and operated on public roads. The owner of the policy should always be the registered owner of the policy and only that owner designated as “named insured”can provide consent for another to operate the vehicle and in turn provide that consent for another to become an “insured”. This protection is designed to provide the financial responsibility required by law to owners “named insureds” and those with consent “insureds”. It goes without saying that in today’s world limits of $500,000 to $1,000,000 of Third PartyLiability insurance are not uncommon. Due to the high court awards of the past 20 years insurers, agents and brokers encourage insureds to purchase limits in excess of the Provincial Limits.
Third Party Liability insurance forms a mandatory part of the Owners Automobile Insurance Policy (OAP1) in the province of Ontario.
What is Excluded Under Your Third Party Liability? [top]Lets keep this area simple for the purpose of this mini series.
- Third Party Liability does not cover property in the care custody or control of the insured.
One reason for the necessity to carry adequate limits. Not enough coverage could mean financial ruin for the owner or operator of a vehicle involved in an accident.
What ADDITIONAL coverage, above your policy limits are you getting when you purchase Third Party Liability Insurance? [top]Known as the “Additional Agreements Of The Insurer” under this area of coverage
your insurance company agrees in addition to your policy limits to:
- Investigate a claim against you.
- Provide and pay legal costs
- Pay post-judgment interest (On the insured portion only)
- - If the accident happens in another jurisdiction covered by the policy and their minimum limits exceed those of Ontario’s, your policy limits will be automatically increased to at least their minimum limits.
- This section will also reimburse an insured person for any expenses in providing immediate medical aid to an injured person hurt in an accident.
- If travelling in another jurisdiction this section of coverage agrees not to set up a defense in the jurisdiction the accident occurs that would not normally be allowed there, but allowed in the province of Ontario if that’s where your coverage was purchased.
As policyholder, what responsibilities do you assume when you purchase Third Party Liability? [top]
Very simply any insured person under your policy appoints the insurance company who issued the policy as irrevocable attorney. So don’t run out to get your own lawyer to provide you a defense if you are not happy with the defense provided by your insurer.
Are lawsuits permitted in the Province Of Ontario? [top]
Since the changes made by Bill 59 in November 1996 and again in 2003 with Bill 198 the right to lawsuits in Ontario has changed. The changes expanded the opportunity to sue from the old legislation passed by the former government. Under todays laws lawsuits are permitted for;
Non-Pecuniary losses (Pain and sufferings, subject to a deductible of $30,000 or $15,000 under Family Law) It should be noted that changes made under the reforms of September 2010 amends The Insurance Act to eliminate the deductible for fatal injuries. Law suits will still be allowed PROVIDING THE INJURY MEETS A THRESHOLD. The threshold is defined as; death, permanent serious impairment of an important physical, mental or psychological function.
One very important change made under the amendments of Bill 198 is the responsibility of the claimant or his/her legal representative to prove by means of a set criteria that the injury caused is an “impairment”, “permanent” or an “important function’.
Health Care Expenses – Under revised legislation in September 2010 some mandatory coverage provided under the SAB’s have been reduced or eliminated. This does not stop the innocent party to make an economic loss claim against the guilty third party.
Although changes have brought about many measures to curtail the cost of automobile insurance the right to sue for medical expenses subject to the current verbal threshold rather than the previous catastrophic threshold may be costly.
Economic Losses . subject to limitations, waiting periods and collateral benefits. In this instance no threshold or definition of catastrophic is required.
Automobile Insurance is mandatory in the Province of Ontario. The owner of an uninsured automobile is prohibited from bringing an action against anyone involved in an automobile accident.
Does the law proportion your limit of liability to satisfy Bodily injuries before Property Damages?[top]
Automobile insurance policy limits are set with priority of payments with priority given to bodily injuries first and then to property damages. Assuming that one carries only the minimum limits in the province of Ontario of $200,000 the priority is set out as $190,000 or 95% to bodily injuries first and the balance of $10,000 reserved for any property damages. Keep in mind that this priority only comes in to play when there are insufficient limits. Lets look at an example:
Your Third Party Liability Limits are $200,000. While driving your vehicle you spin out of control strike a pedestrian who suffers very serious permanent injuries and then strike the side of an office tower. After a long legal battle you are liable to pay $350,000 in property damage to the building and $400,000 to the injured party. Your limits are only $200,000. Who collects first? The building owner or pedestrian. Priority of payments will clearly spell out that 95% of your limit goes first to bodily injuries and the balance of 5% to property damage.
Lets look at the same scenario however this time this pedestrian has suffered only minor injuries with an award of only $50,000 for bodily injuries. In this case we will satisfy the bodily injury first to the tune of $50,000 and the balance of the policy limit towards the balance of the claim…that being property damage…..$150,000. Remember your policy limits are just $200,000. The same priority of 95% and 5% applies regardless of your Third Party Policy Limits.
Remember, Third Party Liability Insurance is not designed to cover “..the other person”, but designed to protect in the event of legal responsibility the owner and or driver of your automobile. The greater the limit the better the protection for yourself.