Legal liability refers to the responsibility small business owners have under the law for the injuries or losses they inflict upon others.
Legal liability describes a situation in which a small business is held legally responsible for injuring or financially harming another party, This judgment can result in fines, penalties, or other payments.
When small business owners become responsible for someone else’s losses, they normally have to compensate the person or entity. Depending on the severity of the loss, the payment can outstrip a business owner’s ability to pay, potentially triggering bankruptcy.
There is insurance for nearly every type of legal liability. Here are some of the most common policies for small businesses:
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FAQs
It's typically the first policy purchased by small business owners. This business liability insurance coverage pays for legal costs if a customer slips and suffers an injury at your business, or if you accidentally damage someone's property.
What is legal liability in business insurance? ›
Legal Liability or Fire Legal Liability – Covers your legal liability for loss or damage to real and personal property of others as the result of your negligent acts and/or omissions. The loss or damage must be caused by a covered peril (including loss of use).
What are the legal liabilities of a business? ›
Legal liability describes a situation in which a small business is held legally responsible for injuring or financially harming another party, This judgment can result in fines, penalties, or other payments.
What is legal liability in simple terms? ›
Legal liability is when you are legally responsible for the financial loss of another under the law. This responsibility can arise from intentional actions, accidents, or contracts. Essentially, you become “legally liable” when you are sued for damages, and the court finds you financially responsible for those damages.
How to determine legal liability? ›
Several legal theories combine to judge causation and establish legal liability: 1) cause in fact, 2) proximate or legal cause, and 3) intervening acts and superseding events. Cause in Fact: The basic premise of cause in fact is: without the actions of the supposed at-fault party there would be no injury or damage.
What are the two types of legal liability? ›
A quick definition of legal liability:
There are different types of liability, such as strict liability, which does not depend on intent or negligence, and vicarious liability, which holds a supervisory party responsible for the actions of a subordinate.
What is the difference between insurance and legal liability? ›
Although the name might make it sound like another type of insurance policy, legal liability is not a type of insurance policy. It is a legal concept. A public liability insurance policy is designed to assist your business if it becomes legally liable for third-party personal injuries or damages third party property.
What is a business liability in simple terms? ›
Liabilities are the legal debts a company owes to third-party creditors. They can include accounts payable, notes payable and bank debt. All businesses must take on liabilities in order to operate and grow.
What are the two types of liabilities in business? ›
Liabilities can be divided into two categories according to their term or maturity: current and non-current, or short-term and long-term. Liabilities are recorded on the right-hand side of the balance sheet. They are compared to assets, which represent the assets of the company.
What are the elements of legal liability? ›
These are (1) that a duty existed that was breached, (2) that the breach caused an injury, and (3) that an injury, in fact, resulted.
Types of Liability
The liability of licensees and their employees falls into three areas of law: criminal, administrative, and civil. One situation that could potentially result in all three types of liability is the sale of alcohol to a minor.
What is liability in short answer? ›
Liability generally refers to the state of being responsible for something. The term can refer to any money or service owed to another party. Tax liability can refer to the property taxes that a homeowner owes to the municipal government or the income tax they owe to the federal government.
What is another word for liability in business? ›
accountability burden culpability debt duty obligation. Strong matches. amenability amenableness blame compulsion indebtedness onus subjection susceptibility. Weak matches. accountableness arrearage owing.
How do you calculate business liability? ›
You can plug these amounts into the current liabilities formula below:
- Current Liabilities = Accounts Payable + Notes Payable + Accrued Expenses + Unearned Revenue + Short-term Loans + Other Short-term Liabilities.
- Total Liabilities = Current Liabilities + Long-term Liabilities.
The general rule of tort liability is that the person who causes damage must pay compensation. In certain cases, however, liability can arise on third parties also. The law refers to this vicarious liability.
What are the three elements necessary for a liability insurance policy? ›
An insurance policy contains three necessary elements: identification of the risk covered, the specific amount payable, and the specified occurrence.
What does liability coverage mean in business? ›
What Is Business Liability Insurance? Business liability insurance protects the financial interests of companies and business owners in the event that they face formal lawsuits or any third-party claims. Such policies cover any direct financial liabilities incurred, as well as any legal defense expenses.
What is the exposure to legal liability? ›
Legal liability is the responsibility to remedy a wrong done to another. Special damages, general damages, and punitive damages are the types of monetary remedies applied to liability. Liability exposure arises out of statutory law or common law and cases are heard in criminal or civil court.
What is a legal liability in case law? ›
A liability lawsuit is a legal action taken by an injured person, known as the plaintiff, to recover compensation for injuries caused by another party's negligence or wrongful conduct. This type of lawsuit falls under tort law.
