Definition of Third Party Liability Insurance

Third-party liability insurance protects the insured from legal liability claims presented by third parties. Policies insure against many types of liability, the most common being automobile liability.

Legal Liability

Legal liability is the obligation of one party to another under the terms of the law. When the insured is determined to be liable for injury or damage to the third party, the insurance policy will pay or indemnify on behalf of the insured.

Third-Party Claims

In a third-party claim, the insurer settles the claim with the other party, known as a claimant. The payments from the insurance policy are made to the claimant and not the insured.

Types of Liability Insurance

Liability insurance can cover many types of activity and liability. Common examples are automobile liability, general liability, personal liability, pollution legal liability and professional liability.

Defense Costs

In addition to the indemnity payment to the third party, liability policies commonly cover the legal defence costs of the insured in a lawsuit. These expenses frequently are greater than the ultimate indemnity settlement with the claimant.

First- Party Claims

Contrasted with a third-party liability policy, first-party claims are only between the insured and its insurer, such as a homeowner's claim for a house fire where no one is injured.

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About the Author

Living in Southern California, Tom Zuo is a risk-management professional with decades of experience. He has been writing since 1985, specializing in topics related to insurance and risk management. Zuo holds a Bachelor of Arts in English and mass communication.

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