How third-party liability insurance works (auto insurance only)

Third-party liability insurance has many names, which can make it difficult to understand and what it actually covers.

That’s why we’re here.

Legal liability coverage, auto liability insurance, third-party liability—whatever the term, it’s referring to an insurance policy that protects you against the financial repercussions of being sued for physical injury or damage to someone else’s property. The classic example is a car accident in which you harm another driver or passenger in the other vehicle and are sued for catastrophic damages.

Having third-party liability insurance for your car is not just a good idea—it’s actually mandatory in Canada. Why do drivers need to have it? Because car accidents happen to even the best of us on the road. It would be tough to face financial struggles – even bankruptcy – because of a simple mistake behind the wheel.

“Third-party liability claims payouts accounted for 46.6% of all direct claims incurred.”

2019 Facts of the Property and Casualty Insurance Industry in Canada, Insurance Bureau of Canada

Don’t struggle to pay your legal fees and lawsuit settlement. Make sure you’re protected against what you can’t predict (and it’s a legal requirement to drive, anyway).

What is third-party liability insurance?

We already mentioned that third-party liability insurance coverage provides you with the finances needed to pay other parties that sue you for causing an accident. The coverage is specifically meant for the insured driver and/or owner of the vehicle. It’s used specifically if the motor vehicle injures or kills someone, or damages someone’s property through the fault of the driver.

Third-party liability is one of the three mandatory types of auto insurance in Ontario (and most parts of Canada):

  • accident benefits
  • third-party liability
  • uninsured auto

There’s also personal liability insurance for your home, which would fall under your home insurance policy and doesn’t apply to what we’re talking about here. Try not to confuse the two!

Chart showing average claim payouts for third-party liability insurance, accident benefits, collision coverage, and comprehensive coverage between 2013 - 2017.

What does third-party liability insurance cover?

While lawsuits are not as common in Canada as they are in the United States, they do happen. When you get into a car accident, you could potentially be sued by:

  • a pedestrian
  • a cyclist
  • a motorcyclist
  • the driver of the other vehicle
  • the passengers in the other vehicle
  • passengers within your own vehicle
  • passengers and drivers in a multi-vehicle accident

“In 2018, Canadian private P&C insurers paid out $18.2 billion in direct claims incurred to policyholders for all types of auto insurance coverage: third-party liability, accident benefits, collision and comprehensive, and other coverages.”

2019 Facts of the Property and Casualty Insurance Industry in Canada, Insurance Bureau of Canada

There are many costs associated with being sued that go well beyond lawyer’s fees. Some of these expenses can include:

  • settlement in lawsuits for pain and suffering, or economic loss
  • medical expenses
  • funeral expenses
  • disability income
  • death benefits
  • other related expenses

Without your third-party liability insurance, you could potentially end up paying millions of dollars out of your own pocket and claiming bankruptcy.

An Unforgettable Lesson

In 2007, one of the highest damage awards in Canada occurred in a third-party liability lawsuit that is still remembered today for its tragic outcome. Here are the highlights:

  • Three friends were driving to a cottage in Northern Ontario to attend a party.
  • When attempting to pass on a curve, the driver attempted to avoid a collision and lost control of the vehicle.
  • Both passengers were not wearing seat belts and thrown from the vehicle.
  • The driver was speeding and found to have a blood-alcohol level greatly in excess of the legal limit.
  • One passenger suffered a brain and spinal injury, requiring 24-hour care, and was awarded $11.3 million.

Many lives were permanently altered that evening, with over $19 million dollars in damages awarded at the end of the case because of one fateful accident. It’s also worth mentioning that most car insurance policies don’t contain liability limits that high ($1 million and $2 million limits are the most common), so they likely wouldn’t have been able to cover the entire cost of the awarded funds. That’s why third-party liability insurance is so important for drivers in Canada.

How much third-party liability insurance coverage do I need?

Third-party liability insurance is mandatory across Canada, but each province or territory has its own specific minimum and regulations (listed below). As a general rule, it’s typically recommended to have at least $1 million in third-party liability coverage.

But how do you know if the required minimum is enough? You should consider the following circumstances to help you decide if you need to increase your coverage to suit your needs:

  • Do you travel a lot with your vehicle?
  • Do you use your vehicle for work?
  • Do you live in a densely populated area where the chance of getting into a car accident is higher?
  • Do you live in a geographic area with extreme weather conditions that increase the number of accidents?
  • Are you often driving with passengers?
  • Do you have children who are often in the vehicle?
  • Do you commute for a living? (The 401 saw 53,279 accidents from 2011 – 2015)
  • Do you do a lot of highway driving?
  • How much could you afford to cover on your own if the costs exceeded your coverage?

The average cost per third-party liability claim in Canada was $13,234 in 2017. Could you afford to pay that—or even more?

Mandatory Minimum Third-Party Liability Coverage Across Canada

Each province has its own minimum for third-party auto liability insurance, so we’ve outlined them all right here for you.

Ontario

$200,000 available for any one accident; however, if a claim involving both bodily injury and property damage reaches this figure, payment for property damage will be capped at $10,000.

British Columbia

$200,000 available for any one accident; however, if a claim involving both bodily injury and property damage reaches this figure, payment for property damage will be capped at $20,000.

Alberta

$200,000 available for any one accident; however, if a claim involving both bodily injury and property damage reaches this figure, payment for property damage will be capped at $10,000.

Saskatchewan

$200,000 available for any one accident; however, if a claim involving both bodily injury and property damage reaches this figure, payment for property damage will be capped at $10,000.

Manitoba

$200,000 available for any one accident; however, if a claim involving both bodily injury and property damage reaches this figure, payment for property damage will be capped at $20,000.

Quebec

$50,000 is available for any one accident; liability limits relate to property damage claims within Quebec and to personal injury and property damage claims outside Quebec.

New Brunswick

$200,000 available for any one accident; however, if a claim involving both bodily injury and property damage reaches this figure, payment for property damage will be capped at $20,000.

Nova Scotia

$500,000 is available for any one accident.

Prince Edward Island

$200,000 available for any one accident; however, if a claim involving both bodily injury and property damage reaches this figure, payment for property damage will be capped at $10,000.

Newfoundland and Labrador

$200,000 available for any one accident; however, if a claim involving both bodily injury and property damage reaches this figure, payment for property damage will be capped at $20,000.

Yukon

$200,000 available for any one accident; however, if a claim involving both bodily injury and property damage reaches this figure, payment for property damage will be capped at $10,000.

Northwest Territories and Nunavut

$200,000 available for any one accident; however, if a claim involving both bodily injury and property damage reaches this figure, payment for property damage will be capped at $10,000.

 

Want to see what your third-party liability coverage looks like? Get a 3-minute quote right here. It’s accurate and guaranteed for 60 days.

Third-party liability insurance has many names, which can make it difficult to understand and what it actually covers.

That’s why we’re here.

Legal liability coverage, auto liability insurance, third-party liability—whatever the term, it’s referring to an insurance policy that protects you against the financial repercussions of being sued for physical injury or damage to someone else’s property. The classic example is a car accident in which you harm another driver or passenger in the other vehicle and are sued for catastrophic damages.

Having third-party liability insurance for your car is not just a good idea—it’s actually mandatory in Canada. Why do drivers need to have it? Because car accidents happen to even the best of us on the road. It would be tough to face financial struggles – even bankruptcy – because of a simple mistake behind the wheel.

“Third-party liability claims payouts accounted for 46.6% of all direct claims incurred.”

2019 Facts of the Property and Casualty Insurance Industry in Canada, Insurance Bureau of Canada

Don’t struggle to pay your legal fees and lawsuit settlement. Make sure you’re protected against what you can’t predict (and it’s a legal requirement to drive, anyway).

What is third-party liability insurance?

We already mentioned that third-party liability insurance coverage provides you with the finances needed to pay other parties that sue you for causing an accident. The coverage is specifically meant for the insured driver and/or owner of the vehicle. It’s used specifically if the motor vehicle injures or kills someone, or damages someone’s property through the fault of the driver.

"100% less insurancey. Low guaranteed car insurance rates!" Beside an image of two pink lawn flamingos above the aha insurance logo.

Third-party liability is one of the three mandatory types of auto insurance in Ontario (and most parts of Canada):

  • accident benefits
  • third-party liability
  • uninsured auto

There’s also personal liability insurance for your home, which would fall under your home insurance policy and doesn’t apply to what we’re talking about here. Try not to confuse the two!

Chart showing average claim payouts for third-party liability insurance, accident benefits, collision coverage, and comprehensive coverage between 2013 - 2017.

What does third-party liability insurance cover?

While lawsuits are not as common in Canada as they are in the United States, they do happen. When you get into a car accident, you could potentially be sued by:

  • a pedestrian
  • a cyclist
  • a motorcyclist
  • the driver of the other vehicle
  • the passengers in the other vehicle
  • passengers within your own vehicle
  • passengers and drivers in a multi-vehicle accident

“In 2018, Canadian private P&C insurers paid out $18.2 billion in direct claims incurred to policyholders for all types of auto insurance coverage: third-party liability, accident benefits, collision and comprehensive, and other coverages.”

2019 Facts of the Property and Casualty Insurance Industry in Canada, Insurance Bureau of Canada

There are many costs associated with being sued that go well beyond lawyer’s fees. Some of these expenses can include:

  • settlement in lawsuits for pain and suffering, or economic loss
  • medical expenses
  • funeral expenses
  • disability income
  • death benefits
  • other related expenses

Without your third-party liability insurance, you could potentially end up paying millions of dollars out of your own pocket and claiming bankruptcy.

"You'll be done in 3 minutes. It's easy! Get low car insurance rates" beside a hand holding a pocket watch, above the aha insurance logo with icons for car and home insurance.

An Unforgettable Lesson

In 2007, one of the highest damage awards in Canada occurred in a third-party liability lawsuit that is still remembered today for its tragic outcome. Here are the highlights:

    • Three friends were driving to a cottage in Northern Ontario to attend a party.
    • When attempting to pass on a curve, the driver attempted to avoid a collision and lost control of the vehicle.
    • Both passengers were not wearing seat belts and thrown from the vehicle.
    • The driver was speeding and found to have a blood-alcohol level greatly in excess of the legal limit.
    • One passenger suffered a brain and spinal injury, requiring 24-hour care, and was awarded $11.3 million.

    Many lives were permanently altered that evening, with over $19 million dollars in damages awarded at the end of the case because of one fateful accident. It’s also worth mentioning that most car insurance policies don’t contain liability limits that high ($1 million and $2 million limits are the most common), so they likely wouldn’t have been able to cover the entire cost of the awarded funds. That’s why third-party liability insurance is so important for drivers in Canada.

How much third-party liability insurance coverage do I need?

Third-party liability insurance is mandatory across Canada, but each province or territory has its own specific minimum and regulations (listed below). As a general rule, it’s typically recommended to have at least $1 million in third-party liability coverage.

But how do you know if the required minimum is enough? You should consider the following circumstances to help you decide if you need to increase your coverage to suit your needs:

  • Do you travel a lot with your vehicle?
  • Do you use your vehicle for work?
  • Do you live in a densely populated area where the chance of getting into a car accident is higher?
  • Do you live in a geographic area with extreme weather conditions that increase the number of accidents?
  • Are you often driving with passengers?
  • Do you have children who are often in the vehicle?
  • Do you commute for a living? (The 401 saw 53,279 accidents from 2011 – 2015)
  • Do you do a lot of highway driving?
  • How much could you afford to cover on your own if the costs exceeded your coverage?

The average cost per third-party liability claim in Canada was $13,234 in 2017. Could you afford to pay that—or even more?

"We ditched the bait and switch before we began. Don't get tricked!" Beside a carrot on a stick above the aha insurance logo.

Mandatory Minimum Third-Party Liability Coverage Across Canada

Each province has its own minimum for third-party auto liability insurance, so we’ve outlined them all right here for you.

Ontario

$200,000 available for any one accident; however, if a claim involving both bodily injury and property damage reaches this figure, payment for property damage will be capped at $10,000.

British Columbia

$200,000 available for any one accident; however, if a claim involving both bodily injury and property damage reaches this figure, payment for property damage will be capped at $20,000.

Alberta

$200,000 available for any one accident; however, if a claim involving both bodily injury and property damage reaches this figure, payment for property damage will be capped at $10,000.

Saskatchewan

$200,000 available for any one accident; however, if a claim involving both bodily injury and property damage reaches this figure, payment for property damage will be capped at $10,000.

Manitoba

$200,000 available for any one accident; however, if a claim involving both bodily injury and property damage reaches this figure, payment for property damage will be capped at $20,000.

"You'll be done in 3 minutes. It's easy! Get low car insurance rates" beside a hand holding a pocket watch, above the aha insurance logo with icons for car and home insurance.

Quebec

$50,000 is available for any one accident; liability limits relate to property damage claims within Quebec and to personal injury and property damage claims outside Quebec.

New Brunswick

$200,000 available for any one accident; however, if a claim involving both bodily injury and property damage reaches this figure, payment for property damage will be capped at $20,000.

Nova Scotia

$500,000 is available for any one accident.

Prince Edward Island

$200,000 available for any one accident; however, if a claim involving both bodily injury and property damage reaches this figure, payment for property damage will be capped at $10,000.

Newfoundland and Labrador

$200,000 available for any one accident; however, if a claim involving both bodily injury and property damage reaches this figure, payment for property damage will be capped at $20,000.

Yukon

$200,000 available for any one accident; however, if a claim involving both bodily injury and property damage reaches this figure, payment for property damage will be capped at $10,000.

Northwest Territories and Nunavut

$200,000 available for any one accident; however, if a claim involving both bodily injury and property damage reaches this figure, payment for property damage will be capped at $10,000.

 

Want to see what your third-party liability coverage looks like? Get a 3-minute quote right here. It’s accurate and guaranteed for 60 days.

Seriously, what else can you do in 3 minutes?

Boil half an egg?

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