What is Third-Party Liability Coverage?

Published On: November 8th, 2021Categories: Commercial Insurance, Personal Insurance

Third-party liability coverage, or ‘legal liability coverage,” is the portion of an insurance policy that protects you if you are sued (or are faced with the threat of being sued) for a physical injury or damage to someone else’s property. When settling a lawsuit, this section of your home or car insurance policy is in place to cover all legally-related expenses you would otherwise be required to cover.

This article will outline how liability coverage works and why it’s applicable and essential to your everyday life.

How does third-party liability coverage work? 

Outlined below are a few real-life examples of scenarios in which having third-party liability coverage would be incredibly beneficial. 

Home insurance liability coverage 

  • You’re cutting down a tree in your yard and it accidentally falls on your neighbour or their car. 
  • You’re golfing in Florida and drive your rental golf cart into another golfer or their expensive clubs. 
  • On a family fishing trip, your son steers your boat into someone who is wakeboarding nearby, injuring the person and damaging their boat as well. 

Auto insurance liability coverage 

  • You run over a patch of black ice when pulling into your driveway and hit a pedestrian or knock over your neighbour’s fence. 
  • You’re backing out of your friend’s driveway and accidentally back over their child’s expensive scooter. 
  • You run a red light and hit another vehicle, injuring the other driver and their passengers. 

Bonus tip: the liability coverage built into your home insurance policy follows you all over the world – no matter where you are.  

The importance of third-party liability coverage 

Accidents happen to even the most careful people – even when all the reasonable steps to prevent them are taken. Often accidents result in costly lawsuits that can be financially devastating.  Any of the previously listed scenarios are examples of times that you could be held legally responsible for the injury of others or damage to their property. Having liability insurance coverage ensures you won’t be stuck paying excessive legal fees out of pocket in the case of the unexpected.  

Can renters get third-party liability coverage? 

Absolutely. The majority of tenant insurance policies include third-party liability coverage, in addition to protecting your possessions – but ensure you confirm this with your broker. 

Will I be covered while driving if I have liability coverage in my home or tenant insurance policy?  

No. The liability coverage attached to your home or tenant’s insurance does not cover you when operating a vehicle. Since you do not have coverage, it is highly recommended you carry enough liability coverage on your car insurance policy to protect you in case of a driving-related mishap. 

How much liability coverage should I have? 

You should buy enough coverage to ensure your financial security is protected. The more liability coverage you have, the less you’ll have to pay out of pocket in the case of a lawsuit. Once a claim opens up, and the claim exceeds the limits of your policy, you will be solely responsible for the remaining balance – which, depending on the severity of the situation, could have devastating financial implications – including bankruptcy. 

Some tips to consider when deciding on your third-party liability limits: 

Home insurance liability coverage 

Most insurance companies require that you have a liability limit of $1 Million at minimum. It is vital to consider having a higher limit if you have the following in your home – a swimming pool, backyard swing set or jungle gym, or pets. These put you at a greater risk of potential accidents, especially accidents involving long-term injury, which typically far dramatically exceed the $1 million limit in most policies. 

If you run a business out of your home, it is also essential to check with your broker to ensure your liability limit is high enough to protect you and your business. 

Auto insurance liability coverage 

The exact minimum liability limit required of all drivers varies across provinces, but a costly lawsuit can quickly exceed these limits. It is typically recommended to have a liability limit of at least $1 million on your auto policy. This liability limit is low for those who drive in the United States, where lawsuits are far more common and typically much costlier than in Canada. 

Increasing the liability limit on your car or home insurance policy may cost less than you think, so it’s worth contacting your broker to find out how much it would cost to take your coverage to the next level. 

How to determine if I need extra liability coverage? 

If you have many assets to protect, you might need more liability coverage than what’s included in your home and car insurance policies. An umbrella insurance policy allows you to extend your third-party liability coverage beyond your current limits.  

What if I don’t get sued, but I’m still responsible for an injury or damage to someone else’s property? 

While it’s not technically “liability coverage,” your home insurance policy may include coverage for voluntary payment when you’re responsible for an injury or damage to someone else’s property but not being sued. For example, if you borrow your friend’s designer gown and accidentally stain it, you can volunteer to replace it; or in the event you hit your friend in the teeth while playing road hockey, you can offer to cover his dental bills — and your insurance company can cover the cost. 

Have additional questions? We are here to help. Reach out to your dedicated Bryson team member today. Not a client yet? Connect with us. We are happy to advise on your insurance needs as well.

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Written by:

James Turner
James Turner has been a RIBO Licensed insurance broker for 12 years, who, over the years, has built an impressive set of customer service and sales skills. James prides himself in remaining competitive in his knowledge of insurance markets, programs, and various new technologies as the insurance landscape grows. James is responsible for caring for Bryson clients and leads, supports, and encourages an entire team of Personal Lines Account Managers. Further, James is dedicated to community initiatives that aid in maintaining close ties with Bryson Insurance and the community they serve.

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