First Party and Third Party Claims

The insurance coverage litigators at Mark Anchor Albert and Associates handles insurance coverage issues involving both first party and third party claims.

“First party” claims involve covered losses or damage sustained by the insured, such as injuries or liability covered by a fire, theft, automobile, or disability insurance contracts. See Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645, 663. “Third party” coverage protects the insured from liability to third parties based on the insured’s acts or omissions that are covered under the insurance policy. See Essex Insurance Co. v. City of Bakersfield, (2007) 154 Cal.App.4th 696, 705.

In a “first party” case against an insurance company, the insured is the plaintiff and seeks to obtain coverage under the insurance contract, and does not seek to recover damages from a third party. See McKinley v. XL Specialty Ins. Co. (2005) 131 Cal.App.4th 1572, 1576. In a “third party” case, the third party claimant is the plaintiff who is suing the insured to recover damages for injuries allegedly caused by the insured’s acts or omissions, for which the insured seeks coverage from his or her insurance carrier to either defend the lawsuit or indemnify the insured from any judgment or settlement in the case. See Austero v. National Casualty Co. (1978) 84 Cal.App.3d 1, 26-28.

The distinction between third party and first party claims impacts various important insurance coverage issues, such as the duty to defend, the applicable statutes of limitation, the duty to defend and to indemnify, notice and proof of loss, and applicable causation requirements.

If an insured’s insurer fails to defend or indemnify the insured against claims asserted by a third party, the insured may need to institute insurance coverage litigation against the insurance company. While the third party claimant typically is not a party to the related insurance coverage litigation brought by the defendant/insured, sometimes the insured will join the third party claimant as a defendant in a declaratory relief action against the insurance company seeking a judicial declaration that the third party’s claims are subject to the insurance policy’s defense and indemnity provisions. See State Farm Mut. Auto. Ins. Co. v. Crane (1990) 217 Cal.App.3d 1127, 1134-1135 (1990) (joinder of third party claimant proper even though that party has no individual claim against the insurer until a judgment is entered against the insured).

Complicating matters further, if the third party claimant obtains a judgment against the insured, in a trial or an arbitration, the third party claimant, as a judgment creditor of the defendant insured, may bring suit directly against the defendant’s insurer as a third party beneficiary of the insured’s liability insurance contract under California Insurance Code section 11580(b)(2). See Murphy v. Allstate Insurance Co. (1976) 17 Cal.3d 937, 943. Alternatively, the third party claimant may bring a direct action against the defendant insured’s insurance carrier as an assignee of the insured’s rights under the insured’s liability insurance contract. In exchange, the third party judgment creditor typically will provide to the defendant insured a covenant not to execute on the insured’s personal assets. See Hamilton v. Maryland Ins. Co. (2002) 27 Cal. 4th 718, 732.

The covenant not to execute—which even may be entered into before a judgment is entered against the insured in favor of the third party claimant—is not a release of liability: the insurance carrier remains obligated to pay whatever judgment is rendered against the insured that is based on liability covered by the indemnity provisions of the applicable insurance policy. See Critz v. Famers Insurance Group (1964) 230 Cal. App. 2d 788, 803.