What is Third-Party Coverage and Do I Need It?

By Jessica Bosari
After 13 years in personal and commercial insurance, Jessica Bosari now writes about personal finance, car insurance, risk management and related topics. Since 2008, she has been simplifying complex ideas through engaging articles for her readers.

What is Third-Party Coverage and Do I Need It?

Third-party liability coverage isn’t just something you need; it’s something everyone else needs you to have, too. It doesn’t just protect your finances; it protects those of others that might be injured if you make a mistake in traffic. Think of all the distractions and near misses you’ve seen over the years while driving. Without third-party coverage, you’re always inches from financial ruin.

Third-Party Liability Coverage

Third-party coverage is known in the insurance world as liability coverage because it pays for damages for which you might be liable. There are two types of third-party coverage that fall under liability. The first is liability for bodily injury, meaning injuries, pain and suffering, disability, lost wages and any other costs an injured person might experience because of an injury. The other is property damage. This coverage is a little simpler. It involves coverage for damage to physical property caused by your negligence. That could mean damage to another person’s car, fence or home – maybe even a phone pole owed by the town.

Yes, You Need It – A Lot!

So, we’ve established how third-party coverage protects those you might injure or otherwise cause damage to. It’s considered so important that third-party coverage is required by law (in some form or another) in every state. Even in New Hampshire, where you don’t necessarily have to carry liability insurance, you still have to show that you have the financial means to pay a certain amount of damages that might arise from an accident. And if you do choose to carry insurance, the state mandates certain minimum limits for your coverage.

Legal Protections

Third-party coverage shields you from the ugly side of the legal process. Without liability insurance, you would have to deal with lawsuits and lawyers after a car accident, and pay out-of-pocket for legal expenses and damages. What third-party coverage really provides is peace of mind.

Not only do you side-step all the ugliness of a lawsuit; you also get a team of legal experts to back you and defend your case as if it were their own – after all, it’s the insurer’s money at stake. I realize that all this might sound a little like a sunshine and rainbows view of liability coverage. I get it. Nobody likes to pay for car insurance. But I hope you do realize how much easier liability coverage can make your life, especially compared to the alternatives.

Expert Advice

Let me illustrate with the story of a claim which came across my desk while I was working as an adjuster. My insured had rear-ended a van full of travelers going from Providence to New York City. It was my job to investigate the accident and verify all the details. The first report made it look like a cut-and-dry case, with my insured at fault. In fact, he was swearing up and down that he knew it was his fault because he rear-ended the van. Even so, a couple of things struck me as odd.

I noticed there was only minor damage to the van, and yet somehow every single occupant had been “injured”. My insured had suffered no injuries at all. Hmm… I took a little extra time with the recorded statement of my driver, asking him about road conditions, lighting and traffic speed. He said traffic was heavy on the highway, but moving along fine. Then the van braked suddenly, too quickly for him to react. Then his car struck the rear of the van.

Spotting Fraud

I asked if there was a traffic jam ahead. No. Did an animal run into the road? No. Was the sun blinding him and possibly the van driver? No. So why did the van stop? I could tell by the sound of the insured’s voice that it was just dawning on him. This accident was likely staged, and he was probably a victim of fraud.

As an adjuster, when you run across a situation like this, you have to send the file over to the company’s Special Investigations Unit (SIU) so they can do all the things necessary to ensure they make a strong case if the accident appears to have been staged. I had the case long enough to see that several of the van passengers had one, two or even three previous car accident injuries. The average person gets in a car crash four times in their lives. These folks were using up their crashes awfully fast.

One of the letdowns of spotting fraud is that you rarely get to see how your accident investigation turns out. A good SIU investigation can take years before it can be prosecuted. But I did get the satisfaction of helping my insured realize that he was not at fault–he’d been had. And if someone like me (paid by his third-party liability premiums) weren’t there to help, he’d have been on the hook for all of it.

Defending Your Case

Another example illustrates my point a little less dramatically. In this case, my insured was leaving the post office parking lot at night. A street paver was parked just across from the lot entrance, and the street lights were out. The paver was not marked with reflective tape and had no caution cones around it. As my insured exited the lot, he struck the paver. Normally, this would be a cut-and-dry case against my driver for hitting a stationary object. But I had the experience and expertise to know that the paver should have had some kind of markings on it to make it visible in the dark.

I argued my case, but predictably, the insurance company for the paver didn’t agree. So we went to arbitration, a process insurance companies use to resolve disputes without costly legal feels. In the end, I presented sufficient evidence not only to absolve my insured of fault, but to get a settlement covering 75 percent of the damage to his vehicle. That allowed me to return 75 percent of his deductible to him as well. Incidents like this made me feel pretty good as an adjuster, and I hope they help you see that having someone who understands liability on your side almost always justifies what you pay in car insurance premiums.

So, yes – you need third-party liability coverage. The next time you look at your car insurance bill, remember these tales. They might make you feel a little better about writing that check every month.