While most insurance protects the policyholder, third-party insurance protects the policyholder from claims by other people (third-parties). For example, an employee is employed by a law firm. While at work, she walks across the room to retrieve a file for her employer, one of the many attorneys that work there. On her walk to the file cabinet, she trips and falls on a piece of torn rug. The employee files a worker’s compensation claim against her employer, the law firm. The law firm’s worker’s compensation policy covers third-parties (employees) that are injured during the course and scope of employment. In this hypothetical, even though the law firm is the policyholder, the worker’s compensation insurance helps protect the law firm from someone (the employee) who was never in the original contract – this is third-party insurance.
In California, there are several common third-party insurances, namely, medical malpractice insurance, legal malpractice insurance, bodily injury car liability insurance and homeowner’s premises liability. Legal malpractice insurance for example, is usually purchased by an attorney (the policyholder). However, even though the attorney is the one who purchases the insurance, it protects the attorney from claims by clients (third-parties) who may potentially sue the attorney.
Generally, third-parties are limited in suing the policyholder’s insurer. However, a problem arises when there is a claim of “bad faith.” If you have questions about third-party insurance and what you may be entitled to, you should seek the advice of an experienced personal injury attorney or professional – most consultations are generally free.
Authored by Scott D. McDonald, Esq.