What is the Difference Between a First-Party and Third-Party Insurance Claim or Lawsuit?
An Explanation of First-Party vs. Third-Party Personal Injury Insurance Claims
Insurance is vital to society and the U.S. economy. Health care, housing, civil litigation, and administrative proceedings governing disability benefits rely on insurance to function efficiently.
As part of this system, the average American family pays thousands of dollars each year to purchase insurance to protect their bodies, lives, vehicles, and property.
For example, when we buy or rent a home, we purchase insurance to cover the risk that trees, wind, fire, water, or earthquakes destroy it.
When we buy or lease a car, we purchase auto insurance to protect us from the risk of a crash.
And we purchase life insurance to replace our wages and earnings if others depend on our incomes.
In addition, businesses spend significant amounts of money on insurance policies to protect their operations, assets, and employees. And the federal government collects taxes to fund government insurance such as Social Security, Medicare, and Medicaid.
But despite its importance and cost, many people pay little attention to the types of insurance coverage they have – until something catastrophic happens. Then it becomes front and center.
Many legal disputes over who should pay for losses or damages trigger some form of insurance. Therefore, insurance often plays a critical role in civil litigation.
Indeed, this insurance coverage often determines:
- Who pays for your losses,
- Which law firm will represent the defendant if you file a lawsuit to enforce your rights, and
- Your potential to collect a verdict or judgment.
This is why finding available insurance to cover the harm is one of the first steps in tort law actions seeking damages for personal injuries, wrongful death, or property damage, workers comp claims after industrial accidents, and breach of contract cases.
There are many types of insurance policies covering a variety of risks. But all insurance coverages can be divided into two categories: first-party and third-party insurance.
First-party and third-party insurance are both types of coverage that can help protect you from the physical, mental, and financial consequences incurred from an accident.
But when should you file a first-party insurance claim versus a third-party claim? That’s where this article comes in. It explains what each type of insurance offers and how first and third-party claims can work together to cover your losses if either coverage is insufficient.
In short, when you submit a first-party insurance claim, you ask that your own insurance company pays for damages covered by your policy. On the other hand, you file a third-party insurance claim with someone else’s insurance company when that person caused an accident or damage. This is why liability insurance is called third-party insurance – the policy provides benefits to persons who are not parties to the insurance contract.
Keep reading to learn more about potential insurance claims you may have if you suffered injuries in a car crash or workplace accident or have sustained property damage. Then contact me for a free consultation with a top-rated liability insurance lawyer in Virginia.
Insurance Policy Basics
An insurance policy is a contract.
The contract forms when a person (or company) submits an application for insurance to the insurer, and the insurer accepts it.
The insurance policy specifies:
- The parties to the contract.
- What will be insured (“the insurable interest”)
- The risk insured against.
- When the contract starts.
- When the contract ends.
- The amount of insurance coverage; and,
- The premium amount and when you pay it.
Suppose the insurance contract complies with the applicable statutes regulating insurance. In that case, the policy terms and principles of contract law (and how courts interpret contracts) will govern any dispute between the parties to the agreement.
What are First-Party Insurance Claims?
First-party insurance is insurance you purchase for your protection. It is helpful because it covers losses when you suffer bodily injury or property damage – regardless of fault.
Therefore, a first-party insurance claim refers to a situation where you submit a claim against your insurance carrier for a loss you have suffered directly.
How Does First-Party Insurance Work?
Here is how first-party insurance works.
You buy an insurance policy from a company such as State Farm, Geico, Nationwide, or Allstate. Now you are the policyholder (also called the insured).
Under this policy, the insurance company agrees to compensate you for specific losses resulting from a risk covered under the policy.
The first-party policy may insure other people as well.
For example, the policy will typically cover your spouse, dependent children, and anyone else who lives in your home, even if that person’s name is not on the policy. And you can add others to the policy with the proper endorsements. If applicable, this may include other permissive users of the vehicle or permissive occupants of the property.
The Claims Process for First-Party Insurance
If you suffer an injury or damage you believe the policy covers, notify the insurance company of the incident and your losses. You can tell them what happened and what kind of damages you suffered.
At this point, the insurer will usually assign a claim number and appoint an investigator – traditionally referred to as a claims adjuster. The adjuster will speak with you and will most likely want as much information as you can provide, such as what damages you suffered and why you think you’re entitled to a certain amount of compensation. In addition, they may want photos of any injuries or damage, medical expenses, proof of lost wages, and anything else relevant to the payment sought.
Then the adjuster will determine whether to pay your claim and, if so, how much to offer. And you can respond. Indeed, there might be several rounds of negotiation, and I never recommend accepting the first offer.
How much you receive depends on the amount of damage, the proof you present, your particular policy, your policy limits, and your deductible. Fortunately, you have legal options if you are not satisfied with the insurer’s best offer, which I discuss later in the article.
This is where having an experienced lawyer on your side can be incredibly beneficial. Insurance companies often want to pay out the least amount of money possible – this is how they remain profitable. They handle this process every day, whereas you probably aren’t very familiar with it. Without a lawyer, you run the risk of being taken advantage of and receiving far less compensation than you deserve.
This is also why I recommend you not give a recorded statement to the claims adjuster without talking with a lawyer first. You may mistakenly say something that hurts your claim.
First-Party Insurance Examples
Examples of first-party insurance claims include:
- Collision Insurance: If you run into a guardrail when your car hydroplanes during a rainstorm, you can file a claim with your auto insurance company and ask them to pay for any damages to your vehicle or the telephone pole.
- Cyber Security Insurance
- Fire Insurance
- Homeowners’ Insurance: If a tree falls on your home and damages the roof, you can file a claim to pay for the needed repairs.
- Health Insurance: If you hurt your back, you can submit a claim to your private health insurance (Aetna, Blue Cross Blue Shield, Cigna, etc.) to pay for prescription medication and spinal fusion surgery.
- Life Insurance: Your spouse may purchase a life insurance policy naming you as the beneficiary. If they pass away, you can submit a claim to the insurer for the proceeds.
- Long Term Disability. If you are diagnosed with cancer and cannot work during chemotherapy, you can file a claim with your long-term disability insurance company.
- Marine Insurance: This covers damage to ships or cargo during transport.
- Medical Payments Coverage (Med Pay) or Personal Injury Protection (PIP) policy. You can use this coverage to pay for medical expenses after an auto accident and do not have private health insurance (or cannot afford the deductible).
- Social Security disability benefits. You can pursue Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) if you have medical impairments that prevent you from working based on your age and other factors.
- Theft Insurance
- Underinsured or uninsured motorist (UM/UIM) coverage. You can use this first-party insurance if the defendant driver is uninsured or does not have enough insurance or assets to pay for all your losses from the car wreck.
First-Party Insurance Denials
Just because you were involved in an accident or suffered injuries, losses, or property damage doesn’t mean your claim will automatically be accepted.
Indeed, the first-party insurance claims process can become adversarial. Remember – you are seeking money from the insurer directly.
- Criminal Acts: Some policies exclude first-party coverage for criminal acts. For example, a medical malpractice insurer may not have to defend claims alleging a physician assaulted or battered a patient.
- Expiration of Statutes of Limitations: Most policies include terms that limit the time you have to sue the insurer because of a breach under the policy. This type of term is called a “no-action clause.” A failure to act within this period may result in the insurer denying your claim even though it is otherwise valid.
- Failure to Cooperate: Some first-party insurance policies allow the insurer to take your examination under oath if reasonably necessary and a stated requirement in the policy. A failure to participate may result in denied coverage.
- Fraud: The insurer may deny the claim if it suspects you have submitted a fraudulent claim or secured the first-party policy by fraud.
- Intentional Acts: Some policies contain intentional act exclusion language. If the insurer can prove you had a “preconceived design to inflict injury,” it may deny coverage.
- Late Notice: Many insurance policies require the insured to timely or reasonably report any claims. If you wait too long, the insurer may allege that your delay has prejudiced it. Virginia is one such state where it is difficult for a policyholder to recover benefits under the insurance contract if they report the claim too late.
- Material Misrepresentation: An insurance company could deny payment if you made a material misrepresentation when applying for coverage or submitting the claim. Examples of material misrepresentation include submitting a damage claim for pre-existing damage or submitting staged photographs.
- No Coverage: This occurs when the loss is not a covered risk under the insurance contract or took place at a location not covered under the policy.
- No Proof of Loss: If you fail to submit paperwork or other evidence that you suffered bodily injury, property damage, or loss, the insurer may deny the claim. Documents are critical to receiving fair payment.
- Policy Cancellation: The insurer may cancel coverage under certain circumstances, such as failing to pay premiums. If the insurer rescinded or canceled the policy before you suffered a covered loss, you might not receive payment.
The insurer must provide written notice that it has denied your claim. This notice should also include the reasons for the denial and what steps you must take to appeal the decision. The appeal procedure often differs from insurer to insurer, so keep any paperwork you receive and make sure you know the next steps to take.
Can a First Party Insured File a Lawsuit if they are Unhappy with the Insurance Carrier’s Decision?
Yes.
Your insurance policy is a contract. If you think the insurer has breached the agreement, you may file a lawsuit after exhausting the administrative appeals process. The facts of your case will determine whether you bring a civil action in state or federal court or submit a request for arbitration with the American Arbitration Association (AAA).
Your lawsuit will allege a breach of contract.
And it may also include a claim of bad faith by the insurer. Indeed, many bad faith lawsuits result from insurance company allegations that the underlying claim is fraudulent.
Under a first-party insurance contract, the insurer must act in good faith. This means it owes you specific fiduciary duties and obligations. And if it fails to do so and breaches the contract, you can file a lawsuit alleging bad faith and other legal causes of action.
Some examples of an insurer acting in bad faith include:
- Failing to perform a prompt and complete claim investigation
- Not acknowledging your claim for payment
- Failing to reply to your claim or requests for information
- Denying your claim without giving a justifiable reason
- Offering an inadequate and unreasonable settlement amount
- Making threatening statements to you
- Misrepresenting the insurance policy or applicable law
- Delaying review or payment of your claim
- Requiring overly burdensome documentation before processing your claim
You have the burden of proof in a first-party insurance lawsuit, which means you must convince the judge or jury that the insurer more likely than not breached the contract (a lower standard than criminal law). But if you are successful, there is a strong likelihood that you will obtain a high verdict that penalizes the insurer.
What is a Third-Party Insurance Claim?
Third-party insurance is also called liability insurance. You purchase it to protect your income and assets if your acts or omissions cause damage to another.
Similarly, you can attempt to recover from a person’s liability insurance when that person causes damage to you or your property.
Therefore, a third-party insurance action refers to a situation where a person not named on the policy submits a claim or files a lawsuit against the insurer.
As the name suggests, there are three parties in a third-party claim.
The first party is the insured person or business, usually causing harm.
The insurance company is the second party.
And the injured person (or company) is the third party.
The Relationship between the Insurer and the Insured with Third-Party Insurance
Third-party insurance claims have a different dynamic than first-party insurance claims.
The insurer and the insured (the first and second parties) often work together to defeat or minimize the liability claim. This is a significant difference from first-party actions, where the insurer and insured have opposite goals.
Further, the insurance company does not owe the third party a duty of good faith when investigating or adjusting a claim. Therefore, a third party rarely has a bad faith claim against the insurer.
However, the insured can assign a bad faith claim to the third party if the court renders a significant verdict.
An Example of a Third-Party Insurance Claim
Here is an example of a situation that could result in a third-party insurance action:
If a drunk driver runs a red light and hits you while you’re driving your car, you will most likely file a claim with their insurance company – assuming they have insurance. Instead of your own insurance company having to pick up the bill, the other driver’s insurer would be responsible.
In many circumstances, filing a third-party insurance claim with the at-fault driver’s insurance company will allow you to collect compensation for medical expenses, lost wages, and physical pain and suffering. Even though you are not the policyholder, you can still receive compensation from someone else’s insurance company by filing this type of claim.
The Process for Third-Party Insurance Claims
The process is somewhat similar whether you decide to file a first-party claim or a third-party claim.
Indeed, the primary difference is what insurers you should notify of the event causing damages.
Can You File a Third-Party Insurance Lawsuit?
Yes, you can file a third-party lawsuit if the at-fault person’s insurer refuses to pay the claim or offer a fair amount to settle.
For example, in an auto accident case, you will file a lawsuit (often a negligence action) against the defendant driver and their insurance carrier. Then that person’s insurer will step in to provide legal counsel and pay some or all of the verdict.
If the insurer acted unreasonably and you obtain a large verdict against the defendant, the defendant may assign their bad faith claim to you.
Workers comp provides another example of a third-party insurance claim.
Your employer purchases workers compensation insurance for its employees.
Suppose you suffer an injury by accident arising out of and in the course of the employment or contract an occupational disease. In that case, you may submit a claim to the Workers Compensation Commission. And if you are successful, you could receive lifetime medical coverage, wage loss payments, and compensation for permanent loss of use and impairment. You may even negotiate a work injury settlement through this third-party claim.
How To Know Which Insurance Claim to Submit
With any insurance claim, it’s helpful to have an attorney assist you in submitting the claim. However, you might be wondering which claim you should file if you can’t afford an attorney or decide not to use one.
Typically, you will file a first-party claim with your own insurance company when you’re at fault for the accident or damages that occurred. Or if the weather or an “Act of God” causes the loss.
If someone else is at-fault for an accident, loss, or injury you suffered, you’d want to consider filing a third-party claim with their insurance company instead.
If it isn’t immediately clear who is at fault, bringing both types of claims might be possible. In this case, though, you’d be much better off consulting with an attorney so you can be as efficient as possible and make sure you’re taking the appropriate steps. For example, if you’re owed compensation, you want to make sure you receive what you’re entitled to, and you want to ensure that you don’t miss out on receiving that compensation by filing the wrong type of claim.
It’s also possible for another problem to arise. If the other party is at fault but does not have insurance or doesn’t have enough insurance to cover your injuries or property damage, you have to determine what steps to take next. You may also have to file a claim with your own insurance company, in that case, to be made whole.
When Do I Have Both First- and Third-Party Insurance Claims?
Two situations may involve first and third-party insurance claims.
The first is when another driver is at fault for the auto accident. Hence, you file a third-party action against that driver. But if that person has no or inadequate insurance to cover your losses, you can submit a first-party uninsured/underinsured motorist claim against your own insurance.
The second example occurs when the insured driver is at fault for the crash that injures a passenger in the vehicle. In this situation, the passenger can submit a third-party claim against the driver’s liability insurance and a first-party claim to the medical payments coverage policy.
The Dangers of Dealing with an Insurance Company without a Lawyer
Dealing with the insurer is the last thing you want to do after an accident or suffering property damage. Indeed, it would be best if you instead focused on recovering physically and mentally.
Unfortunately, you often have no choice.
You are stuck dealing with the insurance company. And insurance companies will often try and lowball people trying to get damages covered or even try to deny claims altogether.
Therefore, dealing with an insurance company without legal representation can be very costly since they may take advantage of anyone who doesn’t understand the law. You could cost yourself a lot of time and money by trying to handle a claim on your own.
Contact a Reliable Insurance Attorney Today!
Insurance claims are complex.
Determining whether you have a first-party or third-party claim or both is just the start to obtaining a fair recovery for your losses.
Then you have to prove the claim.
Let us take care of the insurance dispute while you focus on moving forward with your life. You can e-mail me at cpollardjba@gmail.com, call me at (804) 251-1620 or (757) 810-5614, or contact me online and I will return your call right away. See why my colleagues and past clients have named me one of the best personal injury lawyers in Virginia.
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