Legal Liability
What Does Legal Liability Mean?
Legal liability refers to a person or entity’s legal obligation under the law. If a person or entity, such as a business, fails to meet this responsibility, they may be sued. Court proceedings can hold them liable for compensating the complainant for bodily injury, property damage, lost wages, and other claims. Lawsuits can result in substantial financial penalties, sometimes reaching millions of dollars.
In the context of insurance, individuals and businesses often purchase liability insurance, either as a standalone policy or as part of a comprehensive insurance package. Liability insurance provides protection against legal claims for bodily injury, death, or property damage caused by the insured’s actions or negligence.
For example, a grocery store might purchase commercial general liability insurance. If a customer slips on a wet floor in the produce section, breaks a leg, and sues the store, this liability insurance would cover the legal expenses. It would also pay for any damages awarded, such as the customer’s medical bills and lost wages.
Liability insurance is typically included in most property and auto insurance policies. In the event of a car accident, for instance, the policy would cover the costs of repairing the damaged vehicle, physical property, or any bodily injuries resulting from the accident. The liability insurance would cover the repair of the fence the car crashed through and the medical bills of passengers, while the physical damage insurance would cover the cost of repairing the responsible party’s vehicle (minus the deductible).
Insuranceopedia Explains Legal Liability
Legal liability can extend beyond the physical boundaries of one’s property or vehicles. For instance, a business owner has a legal responsibility to ensure that the products they sell are safe for consumers. If a product causes injury or damage, the business owner is liable for those losses, even after the product has left the store.
Similarly, a home insurance policy provides legal liability coverage that extends worldwide. For example, if a policyholder accidentally starts a fire in a hotel room while on vacation, the legal liability portion of their home insurance policy will cover the damages to the hotel.
Most policies come standard with $1–$2 million in legal liability coverage, but an umbrella policy can provide additional protection. An umbrella policy offers higher coverage limits for property damage and bodily injury and may also include protection against personal lawsuits, such as libel, slander, and mental anguish. Legal liability coverage through an umbrella policy typically ranges from $3–$10 million, depending on the provider.
For example, consider someone who has a condo insurance policy with $1 million in legal liability coverage, an auto insurance policy with $2 million in legal liability coverage, and a $3 million umbrella policy. If a fire starts in the insured’s condo and causes $2.5 million in damage to other units, their condo insurance would cover the damages to their own unit, while the legal liability coverage and umbrella policy would pay for the damage to the other units. The condo insurance would cover the first $1 million, and the umbrella policy would cover the remaining $1.5 million. Umbrella coverage is especially recommended for individuals with high-value assets, multiple properties, or those who face a higher risk of being sued.
Due to the increasing costs of building materials, labor, and the frequency of personal injury lawsuits, it’s advisable to review your legal liability limits annually with a broker or agent to ensure sufficient financial protection.
