Third-Party Insurance
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| An insured may submit a claim to his insurer to recover under two different categories of insurance. The categories are based on whom the insurer is required to pay. If the insurer is required to pay the insured for his direct loss, the insurance classification is "first-party" insurance. If the insurer is required to pay a third party due to a loss caused by the insured to the third party, the insurance classification is "third-party" insurance. This article addresses third-party insurance only.
Liability insurance is the main type of third-party insurance. Liability coverage protects the insured from liability arising from personal injury or property damage caused by the insured to a third party. When the insured causes a loss to the third party, the insurer is charged with the duty to pay the third party on the insured's behalf. Even if the third party obtains a judgment against the insured and the insured suffers a monetary loss, the insured's loss is indirect and the third party's loss is direct. The insurer indemnifies the insured for the indirect loss, but payment in practical effect runs directly to the third party through the insured as a conduit.
A third party generally may not sue the insurer directly for payment of the insured's policy proceeds, unless a statute or a legal judgment provides for such an action. Many states do have such "direct action" statutes. Copyright 2010 LexisNexis, a division of Reed Elsevier Inc. |