Interpretation of First and Third Party Insurance Policies
Differences between Property and Liability Policies
See the full video at https://youtu.be/7KtT5dvuR30
As the California Supreme Court observed in both Garvey v. State Farm Fire and Casualty Co., 48 Cal. 3d 395, 770 P.2d 704, 257 Cal. Rptr. 292 (Cal. 1989), 48 Cal.3d at p. 399, fn. 2, 257 Cal. Rptr. 292, 770 P. 2d 704, and Prudential-LMI, 51 Cal. 3d at pp. 698-699, 274 Cal. Rptr. 387, 798 P. 2d 1230, a first party insurance policy provides coverage for loss or damage sustained directly by the insured (e.g., life, disability, health, fire, theft, and casualty insurance). A third party liability policy, in contrast, provides coverage for liability of the insured to a third party (e.g., a commercial general liability or CGL policy, a directors’ and officers’ liability policy, a business owners’ policy, or an errors and omissions policy).
In the usual first party policy the insurer promises to pay money to the insured upon the happening of an event, the risk of which was insured. In the typical third party liability policy, the carrier assumes a contractual duty to thoroughly investigate and defend claims or suits and pay judgments the insured becomes legally obligated to pay as damages because of bodily injury or property damage accidentally caused by the insured.[1]
The difference in the nature of the risks insured against under first party property policies and third party liability policies is also reflected in the differing causation analyses that must be undertaken to determine coverage under each type of policy. “Property insurance … is an agreement, a contract, in which the insurer agrees to indemnify the insured in the event that the insured property suffers a covered loss.” Coverage, in turn, is commonly provided by reference to causation, such as “loss caused by” certain enumerated perils.
© 2020 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.
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