What Is “Absolute Liability”?

Absolute liability is the obligation of an insurer to indemnify an innocent third party who was injured by an insured, while the insured was in violation of the insurance policy. Under the absolute liability provision of the Insurance Act, RSNB 1973, c I-12, [the ‘Act’], the insurer may deny coverage to the insured for the breach of the policy; however, the insurer remains responsible for indemnifying the innocent third party up to the statutory limits, which is $200,000 in New Brunswick. In other words, the innocent third party is not prejudiced completely from recovery by the insured’s violation of the insurance policy, except to the extent of statutory limits.

Absolute liability arose out of concerns for the innocent third party driver – it was held to be contrary to public policy to deny recovery to an innocent third party who was injured in an accident when that party had no way of knowing or preventing the insured’s violation of the policy.

The absolute liability provision is found in section 250 of the Act. It is section 250(1) of the Act that provides injured third parties a right of direct recourse against the insurer once a judgment has been recovered against an insured person entitled to indemnity under the automobile liability policy. As per section 250(11), when the policy provides for coverage in excess of this limit, as the majority of policies do, the insurer is entitled to avail itself of any defence it has against the insured, notwithstanding section 250(4). This means that the insurer may deny claims made by the injured third party in excess of $200,000, on the basis that the insured violated the policy and is therefore not entitled to coverage.

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