Definition and Examples of Liability
How Liability Works
Types of Liability
Definition and Examples of Liability
Liability means the responsibility of one person for something owed to another person. In insurance, the term refers to a legal obligation one party owes to another under the law or contract.
Liability refers to a legal obligation to pay a monetary amount to another party as compensation for damages within the context of insurance. One common source of liability for companies is an accident caused by an employee that injures a customer or third party.
For example, let’s assume you run a grocery store that offers delivery service. Steve, one of your employees, is driving a company delivery truck when he accidentally collides with another vehicle, causing an accident. Steve is unharmed, but a passenger in the other vehicle suffers a broken arm.
As Steve’s employer, you are “vicariously liable” for the accident he caused due to his subsequent use of the truck. If the injured passenger files a claim against your business for compensation for their injury, your business (or your insurance company) must respond to their claim.
How Liability Works
Liability can be imposed on companies under criminal law, civil law, or both.
Civil Liability vs. Criminal Liability
A crime is an infringement of public law, and perpetrators are prosecuted based on proof of guilt beyond a reasonable doubt. Offenders may face imprisonment, probation, or fines. Violations of civil law are handled by courts, and liability is determined based on the preponderance of evidence. If liability is established, defendants may be required to pay monetary damages to plaintiffs. Companies can protect themselves from civil liability by purchasing liability insurance. Criminal liability cannot be insured against as crime insurance is contrary to public policy.
Sources of Civil Liability
One major source of civil liability is torts, or civil damages caused by wrongful acts that result in injury or harm to others. Most civil claims are based on negligence but may involve other torts such as false imprisonment, assault, defamation, and invasion of privacy.
Civil liability can also be imposed on businesses under state laws. For example, many states have enacted product liability laws that make companies strictly liable for injuries caused by defective products. Under strict liability laws, manufacturers are responsible for injuries to third parties caused by their defective products even if the manufacturers were not negligent.
Another source of civil liability is contracts. Many business owners sign contracts in which they assume liability for claims made against them.
For example, let’s suppose Primo Paints, a painting contractor, is hired by Apex Apartments to paint the facade of a building. Primo Paints would expect a contract that holds them liable for any claims made against Apex Apartments that may arise from Primo Paints’ work. If someone is injured in the apartment complex due to Primo Paints’ negligence and files a claim against Apex Apartments, Primo Paints would be liable for any compensation awarded to the injured person.
Types of Liability
There are several ways that businesses can become liable to other parties. Here are the main types of liability:
Property Liability
Many small businesses maintain a place of business, such as an office, store, or warehouse. A workplace can be a source of liability if a customer, vendor, contractor, or other visitor is injured on the premises and files a personal injury claim.
Operational Liability
Businesses that operate off-site may be liable for bodily injury or property damage they cause at client locations; for example, when an employee from your cleaning company cleans a client’s office and accidentally breaks a glass sculpture.
Liability
Product Liability
Many companies manufacture products that they sell to other businesses or the public. Products can cause liability for the company if they are defective and cause injuries to users.
Professional Liability
Businesses that provide professional advice may be liable for mistakes or omissions that result in financial losses for others; for example, if an accounting firm makes an error in a client’s financial statement that results in the loss of a lucrative contract for the client.
Traffic Liability
Business owners or their employees can create liability for the company if they cause a traffic accident due to their negligence that injures a third party or causes damage to their property.
Key Points Summary:
- Liability means an obligation borne by one party towards another. In the context of insurance, liability refers to a legal duty of the first party to compensate the other party for harm.
- Liability can be imposed on companies under criminal or civil law, but only civil liability can be insured.
- Companies can become liable to other parties through torts, statutory laws, or contracts.
- There are many types of liability including product liability, operational liability, professional liability, and traffic liability.
Source: https://www.thebalancemoney.com/what-is-liability-5197630
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