Liability insurance is the cornerstone of every Ontario auto insurance policy. It protects you from potentially devastating financial consequences if you cause an accident that injures someone or damages their property. Understanding how liability coverage works is essential for every driver.
What Does Liability Insurance Cover?
Third-party liability insurance protects you when you are legally responsible for:
- Bodily injury: Medical expenses, rehabilitation costs, lost wages, and pain and suffering claims from people you injure
- Property damage: Repairs or replacement of vehicles, buildings, or other property you damage
- Legal defense: The cost of defending yourself in court if you're sued
The "third party" refers to anyone other than you (first party) or your insurance company (second party).
Ontario's Minimum Requirements
Ontario law sets the minimum liability coverage at $200,000. This amount must cover both bodily injury and property damage claims combined.
However, the minimum is rarely adequate in serious accidents. Here's why:
- A serious injury claim can easily exceed $200,000 in medical costs alone
- Pain and suffering awards in Ontario can be substantial
- If you injure multiple people, the minimum can be depleted quickly
- Any costs beyond your coverage limit become your personal responsibility
Recommended Liability Limits
Insurance professionals and the Insurance Bureau of Canada recommend carrying significantly more than the minimum:
| Coverage Level | Who It's For |
|---|---|
| $1,000,000 | Recommended minimum for most drivers |
| $2,000,000 | Better protection for higher-income individuals or those with assets to protect |
The difference in premium between $200,000 and $1,000,000 in coverage is often surprisingly small - frequently just a few dollars per month. This makes higher coverage an excellent value.
What Happens When You're At Fault
If you cause an accident and someone makes a claim against you:
- Investigation: Your insurance company investigates the claim
- Defense: If necessary, the insurer provides legal representation
- Settlement or judgment: The insurer pays valid claims up to your policy limit
- Excess liability: If damages exceed your limit, you are personally responsible for the difference
When Liability Coverage Applies
Your liability coverage typically protects you when:
- Driving your own insured vehicle
- Driving someone else's vehicle with permission (subject to that vehicle's coverage being primary)
- Someone else drives your vehicle with your permission (they're covered under your policy)
When Liability Coverage Doesn't Apply
Liability insurance generally won't cover:
- Intentional acts
- Injuries to yourself (that's what accident benefits are for)
- Damage to your own vehicle (collision coverage handles that)
- Driving while impaired or without a valid licence
- Using your vehicle for illegal purposes
Liability for Different Situations
Borrowed Vehicles
When you borrow someone's car, their insurance is typically primary. Your liability coverage may provide excess protection if their limits are exceeded.
Rental Cars
Your liability coverage usually extends to rental vehicles. However, consider adding OPCF 27 (Non-Owned Automobile) coverage for more comprehensive rental car protection.
Driving in Other Provinces
Your Ontario liability coverage extends to other Canadian provinces and the United States. If the jurisdiction requires higher minimums, your coverage automatically meets those requirements.
The Cost of Being Underinsured
Consider this scenario: You cause an accident that injures two people seriously. Medical costs, lost wages, and pain and suffering claims total $500,000. If you only have $200,000 in coverage:
- Your insurer pays $200,000
- You owe the remaining $300,000 personally
- Your assets (home, savings, investments) could be seized
- Your wages could be garnished for years
Protecting Yourself Adequately
Given the potentially catastrophic financial consequences of being underinsured:
- Carry at least $1,000,000 in liability coverage
- Consider $2,000,000 if you have significant assets
- Review your coverage annually as your financial situation changes
- Consider an umbrella policy for even more protection
The small additional cost for higher liability limits is one of the best investments you can make in your financial security.