Third-party coverage
Also called Liability coverage or third-party insurance
Definition
Third-party coverage is insurance that protects your business against claims from other people, such as customers or clients, who say you caused them injury, damage or financial loss.
Insurance talks about three parties. You, the policyholder, are the first party. Your insurer is the second. The third party is anyone else: a customer, a client, a neighbor, a passerby. Third-party coverage responds when one of them makes a claim against your business.
How it works
Third-party coverage, also called liability coverage, typically helps pay for:
- legal defense, including lawyers and court costs, often even when the claim turns out to be groundless
- settlements or court judgments, up to your limits
The insurer generally has the right to manage the defense and decide whether to settle, within the policy’s terms. That’s different from first-party coverage, where the insurer pays you directly for your own losses.
Which policies are third-party
- General liability, for injuries and property damage to others, plus personal and advertising injury
- Professional liability, for claims that your work or advice cost a client money
- Cyber insurance, which usually has both: third-party coverage for claims from people whose data was exposed, and first-party coverage for your own response costs
- Garagekeepers, which protects customers’ cars in your care, and works like third-party coverage when written on a legal liability basis
- Workers’ comp, whose employer’s liability part handles lawsuits over employee injuries
Commercial property, tools and equipment, and business income insure your own losses, so they’re first-party coverage.