Insurance · Negotiation and Settlement

What is the difference between a 'first-party' and 'third-party' claim from the adjuster's perspective?

Correct answer

First-party: the insured is making a claim against their own insurer (property damage to their house, medical payments under their auto policy); Third-party: someone outside the policy is making a claim against the insured, and the insurer defends/pays under liability coverage

  1. A Third-party claims don't exist
  2. B No real difference
  3. C First-party: the insured is making a claim against their own insurer (property damage to their house, medical payments under their auto policy); Third-party: someone outside the policy is making a claim against the insured, and the insurer defends/pays under liability coverage
  4. D First-party is illegal

Why this is the answer

The terminology comes from the parties to the insurance contract. First-party (1st party): the named insured (or someone insured under the policy); they make a claim against their own insurer. Examples: a homeowner whose house burned down filing under their own homeowners policy; a driver hit by an uninsured motorist filing under their own UM coverage; an insured filing a medical payments claim under their auto policy. The relationship is contractual — the insurer owes the insured the contractual obligations of the policy. Third-party (3rd party): a person outside the contract who has been injured or had property damaged, claiming against the insured; the insurer defends and pays on the insured's behalf under liability coverage. Examples: a person hit by the insured's car; a customer injured at the insured's business; a homeowner whose tree fell on the neighbor's car. The insurer's primary contractual obligation is to the insured, with an obligation to act in good faith toward the third party in settling claims. Different ethical and legal duties apply to each type; adjusters handle them differently. Bad-faith claims can arise in both contexts but with different theories. Public adjusters work first-party only.
Source: NAIC Adjuster First vs Third Party

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About this topic: Negotiation and Settlement

Negotiation and settlement questions cover valuing a claim, releases, settlement authority, dealing with represented claimants and the ethical limits on negotiating with an unrepresented person. This is one of 6 Insurance Adjuster questions on negotiation and settlement, each with a full explanation on a single study page.

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