Insurance Law Lesson 8: First Party and Third Party

An insurance policy is a contract. Contracts have parties. There are parties to the contract – the two who have agreed to enter into the contract. Sometimes there are outside parties, called “third parties” who benefit from the contract. Insurance policies follow this formula as well.


In an insurance policy, any insured will be the “first” party. The insurance company is the “second.” Anybody else is the “third.”

First party coverage means that an insured will be paid in the event of a loss. Property policies are first-party coverages. The house burns down, the homeowner (or mortgage company) gets the money to rebuild.


There is no “second party” coverage bc the insurance company is never the recipient of the insurance coverage.


Third party coverage means that the policy covers injury/damage incurred by somebody else. These coverages, also called liability coverage, protect the insured against claims made by other people – claims made by 3rd parties – against the insured.


Under Michigan law, those third parties have no direct rights against the insurer. Some states grant fairly substantial rights to the third parties.

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