Canada: Understanding Third-Party Liability Insurance in Tort Claims

Learn how third-party liability insurance intersects with tort claims, coverage disputes, and recovery after a serious accident Someone else caused the accident. So why is anyone worrying about the bill? Third-party liability insurance exists to answer exactly that question. It is the part of an auto policy that pays when a driver is legally responsible for hurting someone or damaging their property. Third-party liability (TPL) insurance is mandatory for every driver in Canada. No one can legally operate a vehicle without it. Plainly, TPL coverage pays for: All of this is covered up to the limit stated in the TPL policy. Once that limit is reached, the policyholder is personally on the hook for the rest. Provincial minimums for TPL insurance coverage vary across Canada. Most provinces set the floor at $200,000. Meanwhile, Manitoba sets its basic TPL limit at $500,000. TPL coverage does not cover the policyholder’s own injuries or their own vehicle. Those losses are handled separately, through the Statutory Accident Benefits Schedule (SABS) on the injury side, and through collision or comprehensive coverage on the vehicle side. Learn more about third-party liability insurance, what is covered by this policy and not, with this video: Head over to our Special Report on Canada’s Best Personal Injury Law Firms for a list of the country’s leading personal injury boutiques and firms. In a third-party liability insurance policy, the duty to defend is one of the most misunderstood obligations in insurance law, and it matters enormously in tort litigation. An insurer’s duty to defend is triggered the moment there is any possibility (but not certainty) that a claim falls within the policy. This principle was set out by the Supreme Court of Canada in Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada , 2010 SCC 33 , and has been repeatedly applied by courts since. As held in Van Huizen v. Trisura Guarantee Insurance Company , 2020 ONCA 222 , citing Progressive Homes , the duty to defend is not dependent on the insured actually being liable or the insurer actually being required to indemnify. The allegations in the statement of claim are taken as true for this purpose. Here’s what this practically means when it comes to third-party liability insurance: In Pembridge Insurance Company of Canada v. Chu , 2019 ONCA 904 , the court reinforced that the mere possibility of a covered claim is enough to trigger the insurer’s obligation. One distinction is that the duty to defend is broader than the duty to indemnify. An insurer can be required to fund a defence even in cases where it ultimately has no obligation to pay the judgment. As the Ontario Court of Appeal noted in Carneiro v. Durham (Regional Municipality) , 2015 ONCA 909 , the duty to defend is a separate contractual obligation, and the outcome of the trial is irrelevant to it. In catastrophic injury cases, the at-fault driver’s third-party liability insurance limit is frequently not enough. A driver carrying the provincial minimum of $200,000 simply cannot satisfy a multi-million-dollar judgment. This is a problem across Canada, and how each province handles the gap in cases of underinsured at-fault drivers varies considerably: What stays consistent across all provinces is that statutory minimums are rarely enough for serious injury cases. The case of Hugo v. McNorgan , 2025 ONSC 4739 , illustrates the stakes. On November 30, 2021, Petronella McNorgan ran a red light in London, Ontario, mounted a curb, and struck members of the London 120th Brownies. One child was killed and several were injured, generating 25 plaintiffs across eight companion actions. The McNorgans held a $300,000 TPL policy and a personal liability umbrella policy (PLUP) for an additional $2 million from Desjardins Insurance. The court found that the PLUP is not a motor vehicle liability policy under s. 1 of Ontario’s Insurance Act , making the McNorgans ina