What is first party insurance?

First party insurance is any policy that protects the person or company that purchased it against a covered loss. It contrasts with third party insurance (liability insurance) which protects someone other than the policyholder. Example of first party insurance include (but are not limited to):

  • Travel Insurance
  • Fire or Flood Insurance
  • Med Pay Insurance
  • Homeowner’s or Renter’s Insurance
  • Health Insurance
  • Comprehensive Collision & Liability Car Insurance
  • Uninsured Motorist Insurance

An insurance policy is a legally binding contract between a policyholder and an insurance company. The phrase “first party” derives from old legalese, which referred to contracting parties as the “party of the first part” and the “party of the second part.” In this context, the first party is the policyholder and the second party would be the insurance company. In California, third parties do not have the same rights as individuals who are first parties to an insurance contract.

Why is first party insurance important?

Insurance contracts are governed by the California Insurance Code and general principles of contract law. It is the duty of the insurer to defend and indemnify insurers when they are sued by a third party. Another important obligation that comes with first party insurance contracts is fair dealing and good faith. It requires that insurance companies investigate claims by their policyholders promptly and in good faith. A breach of either of these obligations can lead to a lawsuit for “bad faith” by an insurer in California.

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