Third-Party Liability Insurance & What You Need to Know

Accidents happen, whether you’re the worst driver in Ontario or the best. Even if you take all the necessary precautions, account for weather, refresh your driving skills – it doesn’t matter. That’s why we purchase auto insurance, to protect us and our family in the event something happens unexpectedly. Third-party liability, a component of your overarching auto insurance policy (or TPL), helps to form comprehensive protection which defends against any consequential legal proceedings and lawsuits following an accident. In this blog post by Excalibur Insurance, we intend to examine what goes into third-party liability coverage, what it covers, and how to protect yourself. For further questions about your own auto insurance policy, get in touch with an Excalibur Defender!

What is TPLI or “Third-Party Liability Insurance?”

One component of your auto insurance policy is third-party liability insurance. It is designed to protect you if legal action is taken against you or if someone threatens to do so. This may be as a result of an injury that was suffered in an accident you were involved in or the damages to someone else’s property that you were responsible for. You might, in a sense, also consider third-party liability as something of “legal liability coverage” since it is designed to cover legal fees, any amount of money you pay towards settling a lawsuit, and other related expenses.

It’s more common than you’d think. Third-party liability insurance kicks in when someone makes a claim against either you or your insurer. There’s no deductible for third-party liability; the coverage is designed so that you don’t have to pay out-of-pocket for any damages that may have resulted from you being found at-fault in a collision or accident.

In short, third-party liability insurance is designed to cover the following:

• Property damage costs to buildings , fences etc. as a result of an incident you were involved in
• Replacements and/or repairs for damages to other people’s property
• Medical costs for injuries to cyclists, pedestrians, or resulting fatalities
• Damages that are awarded to injured parties from a lawsuit
• Legal fees and lawsuit expenses resulting from the accident

If you are involved in an accident, make sure you are 100% safe before filing a claim to your insurance company. Check out our guide on what to do after a car accident.

What is excluded by third-party liability insurance?

Third-party liability insurance is not an all-encompassing policy. It’s one component of an overarching auto insurance policy that covers legal fees, settlement costs, repair costs, etc. – the costs you are essentially found liable for in the event of an accident. It would not cover any damages or injuries you personally have suffered for an at-fault accident. You would be required to have accident benefits and collision coverage to include both of these.

How Much TPLI Should I Carry?

Every province in Canada has a different bare requirement when it comes to third-party liability insurance. With the exception of Nova Scotia and Quebec, every province and territory requires drivers to carry at least $200,000 in third-party liability coverage. That being said, most severe accidents resulting in a lawsuit may exceed that coverage easily. It is advised that drivers purchase anywhere between $1 million and $5 million in coverage. After a claim has surpassed your policy limits, you will be required to pay the remaining amount out-of-pocket. Court costs add up quickly. It’s advised by many brokers – and by all of the Defenders here at Excalibur – to carry a minimum of a $1,000,000 in liability coverage.

How does my third-party liability insurance kick in following a claim?

Once you are found to be at-fault for an accident where property damage or injury was suffered by a third-party, your insurance provider will analyze the costs in order to compensate the suffering party and provide them with a settlement. If the third-party should agree, the claim is paid out and the case will be closed. If the injured party denies the settlement offering, then the case may result in a lawsuit. For the resulting lawsuit, you would have coverage up until your policy limits.

When Should I Increase My Third-Party Liability Coverage?

To protect yourself against potential third-party liability claims, you may need to look deeper into your own circumstances and how you use your vehicle to gauge if you need to increase your third-party liability coverage. Consider your lifestyle factors.

Do you carpool with others? The risk of injury to your other passengers may be higher if you typically have others in the car with you.

How long is your commute? Statistically, the longer the commute, the higher your chances are of being involved in an accident. (More time on the road = more opportunity to be involved in a collision.)

Do you often take long trips? Travel to the United States? This may present a unique liability exposure.

Do you live and drive in high-traffic areas? Your collision risk may be higher.

Are you a high-risk driver? Depending on your insurer, you may need to acquire altered high-risk driver insurance, which can impact how high of liability coverage limits you are eligible to purchase.

Taken together, consider these factors and work with a broker to determine if you need to increase your third-party liability coverage limits. Again, you should always carry at least $1 million, even if the provincial requirement is $200,000 – simply due to the expensive nature of lawsuits and settlements. You never know when you might have to make an auto insurance claim.

How much does third-party liability insurance cost?

Third-party liability insurance is just one component of a comprehensive auto insurance policy. It works hand-in-hand with other elements of your insurance to provide you the coverage you need. Other mandatory components include uninsured motorist/underinsured motorist coverage and accident benefits. Your costs may depend on how often you drive, your driving history, location, etc., but your costs will also increase per added coverage you include, such as collision and comprehensive coverage, DCDP coverage (although DCDP is no longer a mandatory inclusion in Ontario as of January 2024), rental vehicle endorsements, accident forgiveness waiver, and more.

Work with an Excalibur Defender to help find the best auto insurance coverage for the best price. We get you great coverage at even better rates.