Third Party Insurance
Third party insurance is insurance coverage that someone has who has caused damage or loss to another. Third party claims are often, but not always, an appropriate option when damages have been suffered. When considering a third party claim it is essential to determine your options, including the pros and cons of submitting the claim to your own insurance company.
If, for example, a next door neighbor starts a fire that spreads onto your property and burns your house down, the neighbor’s liability insurance would be responsible for paying for your loss. Other examples include product manufacturer liability insurance covering environmental damage, water or soil contamination, injury or illness. These claims can result in millions of dollars of injury or damage caused to persons, neighborhoods or communities.
Common Third Party Insurance Issues
- Is the third party’s insurer obligated to handle your claim fairly or in good faith?
- If not, what leverage do you have to make them pay you adequately?
- Does the third party insurer have the ability to force you to file a first party claim with your own insurer?
- Short of filing a lawsuit, are you entitled to see a copy of the third party’s insurance policy?
- Without accepting an inadequate settlement what can you do to prevent a third party liability insurer from threatening to delay settlement with time-consuming litigation?
- What is the main difference between making a first party claim or a third party claim?
- When does a third party’s insurance policy come into play?
- If, in addition to the third party coverage, you also have your own (first party) insurance, what are the pros and cons of you submitting a claim to your own insurance company?
- What is the significance of sending a written demand letter to the person or entity that caused your loss? What should the letter say?
- Is your recovery for damages limited by either the third party insurer or your own?
Third Party Claims
Policy limitations also can affect the decision to file a first party or third party claim. With a first party claim your recovery is likely limited to the coverage contained in your policy contract. This includes:
- dollar limits of your coverage;
- your deductibles;
- occurrences that are covered;
- policy exclusions, etc.
However with a third party claim, in most states, you are entitled to recover from the third party for all damages caused by them.
To begin, determine the main elements of your loss. Using the example of fire shown above, you may have the right to recover:
- the cost to rebuild or replace any destroyed property with like, kind and quality construction*;
- any medical expenses or future medical expenses;
- past or future mental or emotional distress suffered as a result of the event;
- past and future value of any lost wages or for the value of your lost time;
- any incidental losses suffered such as money paid to obtain substitute housing or moving expenses; and
- compensation for other damages suffered.
* IMPORTANT! When calculating “like kind and quality’ it is important to obtain a bid of the cost to rebuild, not just an estimate. Also do NOT deduct for depreciation and do not accept lesser quality amenities, construction quality etc.
The Demand Letter
Demand letters are very important.
A demand letter should contain:
- an accurate statement of the event;
- an articulate description of the resultant losses and damage;
- a specific dollar demand; and
- a reasonable time limit to respond.
A demand letter should not be sent until all of the above information is available. Again, with claims involving a substantial amount of money an attorneys advice is strongly recommended.
In many situations you will benefit by the third party insurer settling with you instead of filing the claim with your own insurance company. However, third party insurers are usually in no hurry to throw money at claimants.
If you are prepared for delays, settling with a Third Party insurer will usually result in a higher settlement than one obtained from your own insurance company. In addition filing a claim with your own insurance company may well result in your insurer raising your rates.
Negotiating a Third Party Settlement
Your Demand Letter should contain a comprehensive list of all damages. As above mentioned this should include:
- 100% of all Real and personal property repair and replacement.
- All additional living expenses you have incurred or will incur.
- Damages for the value of the loss of all time expended by household members having to deal with the loss.
- In appropriate situations damages for mental and emotional distress.
- Consequential damages for such things as having had to liquidate assets.
- In rare instances exemplary or punitive damages.
If the demand you communicated was accurate you might not have to lower it substantially, however you may have to extend the time period set forth in order to give the third party or their insurer the time needed to respond.
Counter offers are typically much lower than the amount demanded.
If you can not come to an agreed to settlement you can propose non binding mediation with a company such as First Mediation, the Judicial Arbitration and Mediation Service (JAMS) or some other alternative dispute resolution firm.
Once the matter is resolved, both sides will be asked to sign an agreement containing the terms of the settlement, confidentiality provisions and other things.
Again, if a substantial sum is involved, we strongly recommend that you consult with a lawyer.