Third-party liability insurance: who pays when tort claims hit

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.

What does third-party liability insurance cover?

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:

• bodily injury or death caused to another person
• damage to another person’s vehicle or property
• legal defence costs when the insured is sued
• court-awarded damages and settlement costs

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.

Third-party liability insurance coverage

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:

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When does a TPL policy have to defend an insured?

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:

• coverage clauses in insurance policies are construed broadly
• exclusion clauses are construed narrowly
• where there is genuine ambiguity, the doubt resolves in favour of the insured

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.

Duty to defend vs. Duty to indemnify

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.

How does the TPL insurance apply if the at-fault driver is underinsured?

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:

• Ontario: injured persons can claim under the OPCF 44R Family Protection Coverage endorsement, which is an optional add-on to a standard automobile policy that lets the injured party access their own TPL limits when the at-fault driver falls short
• Nova Scotia and Atlantic Canada: the equivalent of OPCF 44R is the SEF 44 Family Protection Endorsement; in Sabean v. Portage La Prairie Mutual Insurance Co., 2017 SCC 7, it is confirmed that insurers cannot use government programs, like Canada Pension Plan disability payments, to reduce what they owe under an SEF 44 claim
• British Columbia: since 2021, the Insurance Corporation of British Columbia (ICBC) operates a largely no-fault system; as such, personal injury tort claims are substantially limited, and underinsured motorist protection works within a public insurer framework rather than through private policy endorsements
• Manitoba: the Personal Injury Protection Plan of the Manitoba Public Insurance (MPI) eliminates most personal injury tort claims for automobile accidents; it means that compensation flows directly from MPI regardless of fault
• Alberta and Saskatchewan: both maintain fault-based systems with mandatory TPL coverage and private underinsured motorist protection; specifically, Alberta sets its minimum TPL limit at $200,000

What stays consistent across all provinces is that statutory minimums are rarely enough for serious injury cases.

The OPCF 44R in action

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 inadequately insured motorists under s. 1.5 of the OPCF 44R. In effect, the full $2.3 million pool still counts as amounts from “any source” under s. 7 of the OPCF 44R when calculating each claimant’s recovery.

In Somersall v. Friedman, 2002 SCC 59, the Supreme Court confirmed that settling directly with the at-fault driver up to that driver’s policy limits does not extinguish the right to claim under an OPCF 44R or SEF 44 endorsement.

Check out this video to learn more about handling motor vehicle accident claims, specifically in Ontario:

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How does TPL coverage affect a tort claim payout?

Where tort claims remain available, the relationship between a defendant’s TPL limit and the plaintiff’s no-fault benefits affects the final recovery amount. This applies to Ontario, Alberta, Saskatchewan, Atlantic Canada, and Quebec for most accident types.

The prohibition on double recovery

In fault-based provinces, courts prevent injured persons from collecting the same loss twice. For instance, Ontario has codified this through s. 267.8 of the Insurance Act, using a silo-based offset of statutory accident benefits (SABs):

• first silo: SABs for income loss are deducted from the tort award for income loss only (s. 267.8(1))
• second silo: SABs for health care offset only health care damages in the tort award (s. 267.8(4))
• third silo: SABs for other pecuniary losses offset only those same losses (s. 267.8(6))

This structure was established in Cadieux v. Cloutier, 2018 ONCA 903, which states that:

• that a SABs payment in one silo cannot reduce a tort award in a different one, and
• that SABs received after judgment must be held in trust and repaid to the defendant under s. 267.8(9)

Both Girao v. Cunningham, 2020 ONCA 260, and Basandra v. Sforza, 2016 ONCA 251, restated this framework, with Girao further confirming that juries award damages on a gross basis before the trial judge reconciles the offset.

The same no-double-recovery principle applies in Atlantic Canada under the SEF 44 framework. The Supreme Court’s ruling in Sabean established that policy terms are interpreted through ordinary meaning, not technical insurance readings, and ambiguity resolves in favour of the insured.

In Alberta, injured parties access Section B benefits for immediate needs before pursuing tort for additional losses, with a cap on minor injury general damages operating similarly to Ontario’s Minor Injury Guideline.

On the other hand, the largely no-fault structure removes most TPL-tort interaction from the picture entirely in British Columbia and Manitoba.

Third-party liability insurance: the bottom line

When someone else caused the accident, third-party liability insurance is only the first answer to the question of who pays. In serious injury cases, that limit is rarely the end of the story. Injured parties and their legal representatives need to account for OPCF 44R endorsements, the SABS-tort overlap, and the silo rules governing how benefits and damages interact.

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