Alabama Property and Casualty Practice Exam

Which of the following types of contracts is recognized as a third-party contract?

1. Property

2. Casualty

3. Earthquake

4. Theft

The correct answer is: Casualty

In the context of insurance, third-party contracts refer to agreements where one party pays for coverage that provides protection or benefits to another party. Casualty insurance is a broad category that typically encompasses coverage for liability risks, which directly affects third parties. When a casualty insurance policy is in place, it’s designed to protect not only the insured but also others who may suffer damages as a result of the insured's actions. For example, if an individual causes an accident that results in injuries to another person, the casualty insurance covers the liabilities incurred, thus involving a third party—the injured individual. On the other hand, property insurance primarily focuses on protecting the insured's own assets against risks like damage or loss. Policies specific to events like earthquakes or theft also center around property coverage, where the insured's interests are directly affected, rather than the interests of a third party. Consequently, while property, earthquake, and theft coverages are essential, they do not fit into the realm of third-party contracts in the same way that casualty insurance does.