Understanding Third Party Liability Insurance in Canada

Posted on May 12, 2021

Nearly half of all insurance claims filed in Canada each year are third party liability claims. But what is third party liability insurance? Who needs it and what does it cover?

Here's what every Canadian driver needs to know about third party insurance. 

What Is Third Party Liability Insurance?

Third party liability car insurance is a critically important type of vehicle insurance that every Canadian motorist is required by law to carry. It covers the costs of injuries and damages that the policyholder inadvertently causes to other people or their property. 

This type of insurance gets its name because:

  • The policyholder is considered the first party
  • The policyholder's insurance provider is the second party
  • The injured or wronged party is the third party whose costs the policy covers

Technically, third party insurance is available in a range of different types including business policies and general personal insurance coverage. In most cases of its use, however, the term specifically refers to car insurance in Canada. 

Types of Third Party Auto Insurance

Third party insurance policies contain two separate types of coverage: bodily injury coverage and property damage coverage. 

Bodily injury liability is just what it sounds like. It pays for the medical expenses and associated costs incurred when the policyholder accidentally causes injury or harm to someone else while operating a vehicle. 

Property damage liability covers harm done to everything other than people, such as:

  • Houses
  • Cars
  • Yards
  • Personal belongings

Every Canadian driver must carry this insurance. Each province sets its own minimum limits on the amount of coverage drivers must carry. In most cases, the minimum limit is $200,000.

In light of the actual likely costs of an accident and its aftermath, however, many motorists choose policies with coverage of between one and five million dollars. 

Third Party Liability Car Insurance: What Does It Cover?

Third party insurance covers most of the costs associated with car accidents and vehicle-related incidents. This can cover a much wider range of expenses than many policyholders expect. 

Bodily injury liability covers, among other things:

  • Medical expenses associated with injuries, such as hospital and outpatient care
  • Lost wages due to missed work
  • Pain and suffering
  • Punitive damages, where applicable 

Property damage liability covers:

  • The costs of repairing or replacing a vehicle
  • The costs of repairing or replacing belongings inside a vehicle at the time of an accident
  • Restoration of landscaping, fencing, and other physical property damaged in an accident
  • Any costs incurred due to loss of use or loss of access to a vehicle, structure, or property
  • Punitive damages, where applicable 

In most cases, both types of coverage will also pay for a policyholder's legal fees associated with a case.

Critically, third party coverage will pay these expenses for a number of potentially involved parties, including:

  • Drivers of other vehicles
  • Bicyclists or motorcyclists
  • Pedestrians 
  • Passengers in the policyholder's vehicle or another vehicle

This provides comprehensive protection.

What It Doesn't Cover

Importantly, third party coverage does not cover any injuries or damages the policyholder themselves incur. If an accident is the result of another person's actions, that party and their third party insurance coverage must pay those costs. 

Third party policies also may refuse to provide coverage:

  • If the policyholder intentionally harms another person or damages property
  • If the policyholder was drunk, under the influence of drugs, or otherwise actively negligent in causing the accident
  • For any costs that exceed policy limits


Like all insurance policies, third party policies tend to involve deductibles. This means that coverage does not kick in until after policyholders have paid a certain amount of money out of pocket first. 

While high-deductible policies may carry lower premiums, policyholders should be careful when choosing their policies. Choosing a policy with a high deductible can leave motorists vulnerable and struggling financially when an accident occurs. 

One High-Profile Case 

One high-profile example of a case involving third-party liability insurance took place on September 5, 2020. This multi-vehicle crash took place on the Sea to Sky Highway in Vancouver.

It began when a Lamborghini and a Range Rover participating in the Diamond Hublot fundraising rally experienced an incident that sent the Lamborghini across the median. There, it barreled into a Toyota crossover going in the opposite direction. In the aftermath:

  • Two people were severely injured
  • Four people, including two children, suffered lesser injuries
  • All three vehicles involved suffered massive damage
  • Six ambulances and two medical helicopters rushed to the site to provide care
  • The entire highway was shut down for a period of time

While information on a final settlement in this case is not yet available, it provides an excellent example of how far-reaching and essential third party insurance is. Among the costs in this case are:

  • Emergency medical transportation for six injured persons
  • Extensive medical care, including hospital stays, for six people
  • The loss of three vehicles 
  • An unknown number of days worth of lost wages for the four injured adults
  • Potential punitive damages for unsafe driving

The cost to replace the vehicles alone starts at around $340,000. The average cost of an ambulance in British Columbia is $530 and a medical helicopter costs $2,746 per hour. An average visit to the intensive care unit at Vancouver General Hospital can cost between $7,000 and $15,000. 

As these numbers show, this case involves tens of thousands of dollars in emergency medical transportation costs and scores of thousands more in actual medical care. Even without litigation, total costs are likely to approach one million dollars, at least. 

Another Well-Publicized Case 

In another well-publicized case, two cyclists were injured on the same highway. A motorist transporting long planks of wood in his pickup failed to realize that a strap had come loose. This caused the wood to shift to one side of the truck bed where it hung precariously far out over the edge of the road.

The wood planks hit and seriously injured two cyclists, leading to their hospitalization. One cyclist suffered:

  • A punctured lung
  • A broken clavicle and scapula
  • Eight broken ribs

With the surgeries and hospital stays associated with those injuries, as well as rehabilitative care and potential punitive damages, the final costs were projected to be steep. More importantly, however, this case illustrates how little it takes for a generally responsible driver to find themselves in a situation where they are legally on the hook for tens or scores of thousands of dollars in damages at the drop of a hat. A single broken or slipped tie-down strap or another innocent mishap can be all that stands between a motorist and bankruptcy. 

Carrying adequate third party insurance is an affordable and easy way for motorists to get the protection and peace of mind they need. 

Am I Covered When Renting a Car in Canada?

Most third party liability policies will include coverage for whatever vehicle a motorist is driving, including rental cars. However:

  • Every policy is different and motorists should review their own policies before assuming they have coverage 
  • Policies designed to cover your personal vehicle may not provide enough coverage if you rent a very different type of vehicle
  • Crossing provincial or national borders can affect your coverage in a rental car
  • Most rental companies offer additional coverage if you need to bridge coverage gaps

When in doubt, motorists should opt for additional insurance. The modest extra cost is more than worthwhile when considered in light of the potential risk of being caught with insufficient insurance during an accident. 

Other Types of Third Party Liability Insurance 

While vehicle liability insurance is the most frequently referred to kind, it is not the only type of third party insurance available to Canadians. Business liability insurance is also both common and important. 

Business or public liability insurance is a form of third-party insurance coverage that protects:

  • Businesses
  • Subcontractors
  • People and industries that do work or operate facilities that are open to or affect the public  

For example, this insurance would come into play when a visitor or guest has a slip-and-fall accident in a public storefront. The policy would pay for medical care, lost wages, legal fees, and other costs. 

What Is Product Liability Insurance?

Product liability insurance is similar to public liability insurance. Instead of being related to specific places, such as an office or storefront, however, it covers products and injuries or damages related to their use. 

So, for example, it would cover cases such as: 

  • Children being injured by toys or recreational equipment
  • Children killed by furniture tip-overs
  • Adults injured by products, including personal care and cleaning products
  • Liability related to contaminated foodstuffs
  • Vehicles that suffer serious and dangerous design or assembly defects

In each of these cases, product liability insurance covers medical or wrongful death costs, legal costs, and other expenses. In every case, liability insurance can protect policyholders from the staggering costs of accidents and lawsuits. 

Learn More

The right third party insurance can protect you and your financial future from the potentially devastating effects of a car accident. Learn more about choosing the right insurance for your needs in every aspect of your life by exploring our blog today.

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