What is Third Party Liability Insurance in Canada?

Third-party liability, also known as legal liability or auto liability, is one of several core coverages available in auto policies.

Each of these coverages is designed to protect you from financial losses in particular circumstances.

For instance, comprehensive coverage can help pay for damage caused by fire, hail, vandalism and other perils.

Collision coverage can help pay for repairs or replacement of your car if you hit another vehicle or an object.

Depending on where you live and how you finance your vehicle, these and other auto insurance coverages may be optional.

However, third-party liability has nothing to do with damages to your vehicle or your injuries if you’re involved in an accident.

It’s all about other people and their property if they’re involved in an incident caused by your actions.

Coverage kicks in when you are found to be at fault for damages to someone else’s property or when you cause someone else’s physical injury or death. 

How Does Third-Party Liability Insurance Work?

Here’s an example of when third-party liability coverage would come into play.

Let’s say you’re driving down the road and you’re talking to someone on your cellphone.

You’re so absorbed in your conversation that you drive through a stop sign and broadside a car.

After you get your wits about you again, you can see the car is totalled and the woman inside is unconscious and bleeding.

A person walking down the street has already called 9-1-1.

They’re waiting for the police to arrive.

When they do, the witness testifies you ran the stop sign.

The police charge you with careless driving causing bodily harm.

You’ll have to attend court, pay a fine, perhaps lose your license, or even serve a prison sentence.

Moreover, you’re responsible for all the accident expenses.

Of course, this is an extreme example, but even if you cause minor damage to someone else’s vehicle or injure them, the other driver or their insurance company could file a claim.

Lady holding insurance sign

Claims may include property damage, medical costs, lost wages, legal fees for a lawsuit related to the accident, and any damages awarded to injured parties.

Consequently, even a fender bender could end up costing you.

Claims aren’t necessarily caused by two vehicles colliding either.

Damage, injuries, or death can occur in many ways.

Alternative scenarios include:

  • Backing into your neighbour’s garage or fence
  • Damaging an expensive piece of business equipment, a storefront, or sign
  • Hitting a pedestrian or a cyclist
  • Killing an individual in a crosswalk

If the court orders you to pay the costs resulting from an incident and you don’t have savings to pay them, you could face several negative scenarios.

First, the court may issue a judgment against you, forcing you to sell any assets you might own such as your home, investments, or vehicles.

Second, the insurer may seek to garnish your wages until you pay off your debt.

Finally, you may be forced into bankruptcy.

Fortunately, you can avoid all these negative events if you ensure you have adequate third-party liability coverage.

When you do, your insurance can pay the costs up to your policy limit, once you’ve paid your deductible.

Is Third Party-Liability Insurance Mandatory?

Yes, third-party liability insurance is mandatory for all auto insurance policies in Canada. 

Why? According to Insurance Bureau of Canada, third-party liability claims make up 46.6% of claims insurers incur.

Basically, individuals and insurance companies will, and do, go after at-fault drivers to recoup their losses.

Each province sets the minimum mandatory coverage level.

In almost all provinces and territories, this is $200,000.

Quebec’s minimum is only $50,000 and Nova Scotia mandates a minimum of $500,000.

However, property damage payment caps also exist on policies and vary between provinces and territories.

Most only offer $10,000, except for British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador where the property damage cap is $20,000.

Unless you increase your coverage, you’ll pay out-of-pocket if a claim exceeds the payment cap.

Benefits of Having Third-Party Liability Insurance

Third-party liability insurance can protect you from catastrophic losses.

These may include the costs associated with legal fees and lawsuits related to the accident, and any damages awarded to injured parties, property damage, medical costs, lost wages, and more.

Another benefit is your third-party liability coverage may extend to a rental car if you have an OPCF 27 (Legal Liability for Damage to Non-Owned Automobiles) endorsement on your policy.

This could save you a lot of money if you rent vehicles often.

Check with your insurer and the rental company, as restrictions may apply for travel to the U.S. or Mexico.

If you live in Ontario, you may also be covered by Statutory Accident Benefits if you, a passenger, or a pedestrian are injured or killed in an automobile accident.

This is no-fault coverage so it doesn’t matter who caused the incident.

Policies include limits, but cover expenses such as medical care, rehabilitation, attendant care, income replacement, disability income, funeral expenses, and more.

Policyholders can also increase most coverage limits.

Frequently Asked Questions

  • Why is it important to have a third- party liability insurance?
  • How much third-party liability do I need?
  • Provincial and territorial minimums don’t provide adequate coverage. Consider the potential costs of a serious accident. You could easily surpass these limits and bear the responsibility for a considerable amount.

    Insurance professionals recommend extending your third-party liability coverage to between $1 and $2 million. Talk to your insurance agent or broker if you travel to the U.S. often, carpool, live in a busy metropolitan area, or drive for commercial purposes. They may recommend even higher coverage. Fortunately, additional coverage is reasonable and well worth the investment.

Charlene Royston

Charlene Royston has written extensively for the private, public, and non-profit sectors for over ten years. Her experience working with a trust company led to a special interest in personal finance, including mortgages, investments, and retirement options. By simplifying the complex, she hopes to empower others to make more informed decisions.