First Presented at the CBA-OBA Professional Development Program: Fast Out of the Gate: An Insurance Law Primer
An insurance policy is a contract between the insurer and the insured. A 'first party' is the party who is insured under an insurance policy and is often referred to as the policyholder or the insured. If an insured makes a claim directly against his/her own insurance company (the 'insurer') in reliance on an insurance policy, this is referred to as a 'first party claim'.
Some common examples of a first party claim are:
- A homeowner who suffers damage to his/her home as a result of a
fire and the insurer refuses to cover all or part of the loss
- An individual who becomes unable to work and the insurer
refuses to pay income replacement or mortgage payments
- An insured feels that his/her clam was denied unjustifiably or the insurer acted in bad faith
A 'third party' is someone who is not a party to the contractual insurance relationship between the insurer and insured. If a third party makes a claim against an insured, that insured will look to its insurer to defend and indemnify him/her under the terms of the insurance policy. The insurer will refer to this as a 'third party claim'.
Some common examples of a third party claim are:
- A customer slips and falls in the parking lot of the
- A neighbour's property is damaged by a flood which was
caused by an act or omission of the insured
- An individual is seriously injured following a car accident caused by an insured
Certain insurance policies will only provide coverage for first party claims, for instance: long term disability (LTD), mortgage insurance and life insurance. However, most homeowner's insurance policies and automobile insurance policies contain provisions for both first party and third party claims.
Since the relationship between the insurer and insured is a contractual one, the document which forms the basis for any first party claim is the insurance policy itself. The viability of a first party claim is often contingent on the specific language used in the insurance policy and so it is important that counsel for either the insured or the insurer review the document in its entirety before providing advice to a client.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.