Understanding the Distinct Purpose and Meaning of First-Party Insurance

Courts broadly recognize the distinct purpose and meaning of first-party insurance. See, e.g., Great Northern Ins. Co. v. Mount Vernon Fire Ins. Co., 708 N.E.2d 167, 170-71 (N.Y. 1999) (“[W]holly different interests are protected by first-party coverage and third-party coverage.”); Garvey v. State Farm Fire & Cas. Co., 770 P.2d 704 (Cal. 1989). At its core, first-party insurance protects insureds against physical loss or damage from external perils ' eg, fire, flood, windstorm, intentional acts ' to their own property. Many commercial first-party contracts also indemnify a business for the loss of profits directly resulting from this insured physical loss or damage. The coverage afforded by this and any similar endorsement or extension is based on the same fundamental first-party principles as underlie the core physical loss insurance. In each case, the first-party insured bears the impact and receives any indemnity that is due.

In contrast, third-party insurance protects insureds from the consequences of their own unintentional conduct damaging the property of others or causing injury to them. The third party bears the impact and receives any indemnity that is due. Most third-party contracts also provide that the insurer will defend or pay expenses incurred to defend the insured against a suit for damages.