Legal Liability
What Does Legal Liability Mean?
Legal liability refers to a person or entity’s legal responsibility under the law. If a person or entity, such as a business, fails to meet this obligation, they may face a lawsuit. 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 amounting to millions of dollars.
In insurance, individuals and businesses often purchase liability insurance, either as a standalone policy or as part of a broader insurance package. Liability insurance protects against legal claims for bodily injury, death, or property damage caused by the insured’s actions or negligence.
For instance, a grocery store might buy commercial general liability insurance. If a customer slips on a wet floor in the produce section, breaks a leg, and sues the store, the liability insurance would cover legal expenses and pay for damages, including the customer’s medical bills and lost wages.
Liability insurance is often included in most property and auto insurance policies. In the event of a car accident, for example, the policy would cover the costs of repairing the damaged vehicle, property, or bodily injuries resulting from the accident. The liability insurance would pay for repairs to the fence the car crashed through and medical bills for the 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 example, a business owner is legally responsible for ensuring 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 instance, 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 offer additional protection. An umbrella policy provides 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 with a condo insurance policy offering $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 their condo and causes $2.5 million in damage to other units, their condo insurance would cover the damage 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 at higher risk of being sued.
Given the rising 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 adequate financial protection.
