5 Things You Should Know About Third-Party Liability

Have you ever accidentally started a fire by leaving something in the oven? Has your son accidentally broken a neighbour's window while playing street hockey? Have you ever broken a valuable object while having dinner at a friend's house? Has your daughter's dog ever bitten someone, causing serious injuries?

Life is full of surprises, and certain actions can make you legally liable for damages, which is why having home insurance is so important. Third-party liability coverage, also known as personal liability insurance, is generally included in home insurance policies. It protects you and other insured members of your household against claims arising from unintentional damage or injuries for which you are legally responsible.

What is third-party liability? What does it cover? And why is it essential for everyone? Here's what you need to know.

What Is Third-Party Liability?

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Suppose you neglected to remove ice from your driveway. A mail carrier delivering your mail slips and breaks their leg. Depending on the circumstances, you could be held legally responsible for the injuries they sustained. Your home insurance liability coverage may compensate the injured person, subject to the terms of your policy and the determination of legal liability.

Simply put, third-party liability insurance protects you against claims for bodily injury or property damage accidentally caused to another person when you are legally responsible. Courts may determine that civil liability arises from an action, an omission, a failure to comply with a legal obligation, or negligence.

Contractual Liability

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From a legal standpoint, Quebec civil law distinguishes between two main types of civil liability: contractual and extracontractual liability.

Contractual liability arises from obligations established through a contract. For example, a cellphone agreement may require you to make monthly payments over two years. Refusing to make those payments constitutes a breach of contract. However, ordinary contractual debts and payment obligations are generally not covered by personal liability insurance.

The same principle applies when someone hires a contractor to complete renovations and then refuses to pay once the work is done. The contractor and customer are contractually bound; the contract outlines the payment terms. Failure to pay may result in contractual liability for the client.

In Quebec, construction legal hypothecs can help protect contractors, subcontractors, and certain other parties involved in construction projects by securing payment for eligible work and materials.

Extracontractual Liability

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Extracontractual liability arises from the general duty to act responsibly and avoid causing harm to others, even when no contract exists between the parties.

In Quebec, Article 1457 of the Civil Code of Québec requires everyone to follow the rules of conduct applicable to their circumstances, including the obligation not to injure others. This means exercising reasonable care and respecting the standards of conduct required in a particular situation.

If we fail to meet this obligation, we may be held responsible for the bodily, material, or moral damages caused and required to compensate the affected person financially.

Personal liability coverage is included in home insurance because owning or occupying a house, property, or apartment can expose you to significant risks. For example, if your home is poorly maintained and part of it collapses, or if a fire caused by your negligence spreads to a neighbouring property, you could be held responsible for the resulting damage.

In either case, repair costs could be substantial, and you may not have enough savings to cover them. There are also smaller incidents that can lead to financial liability. For example, if you forget to turn off a faucet and the resulting water damage affects your neighbour's apartment, you could be responsible for the repairs. Personal liability insurance may also protect you when an accident occurs outside your home.

How Does Third-Party Liability Law Work in Ontario?

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Unlike Quebec, where civil liability is governed by the Civil Code of Québec, Ontario primarily relies on common law principles of negligence and specific provincial legislation.

Under Ontario law, homeowners, tenants, and other individuals who control a property have a legal duty to take reasonable precautions to keep visitors safe. For example, if someone slips on an icy walkway because the property was negligently maintained, the person responsible for the property could be held liable for their injuries.

However, liability is not automatic. The circumstances of the accident, the precautions taken, and whether the responsible party failed to meet their duty of care all influence the outcome. Personal liability insurance can help cover eligible claims, legal defence costs, and compensation awarded to injured third parties, subject to policy limits and exclusions.

What Should You Do After an Incident?

When an accident involves third-party liability, the claims process is generally similar to that of a car accident or other insured loss.

Whether you are responsible for the accident or the injured party, contact your insurance representative as soon as possible. Your insurer may assign a claims adjuster to investigate the incident, assess the damage, and negotiate a settlement with the other party or their insurance representative, if necessary.

Contractor's Third-Party Liability Insurance

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In the construction industry, commercial general liability insurance protects businesses against covered claims for bodily injury or property damage caused to third parties by the contractor's operations, products, or completed work.

Depending on the policy, this insurance may also cover certain personal and advertising injuries, as well as legal defence costs associated with covered claims.

However, general liability insurance does not automatically cover faulty workmanship itself, contractual disputes, or every type of construction-related loss. Contractors should carefully review their policies to understand their coverage limits, exclusions, and obligations.