Legal liability definition
/What is Legal Liability?
A legal liability is a commitment imposed on a party as the result of a contract or civil action. This may result in the impacted party having to fulfill the designated commitment to a third party, either in the form of a financial settlement or the completion of certain services or the delivery of goods. Alternatively, a legal liability may be covered by insurance. It may also be voided by the legal structure of a business; thus, the legal liabilities of a corporation do not extend to its shareholders.
Examples of Legal Liability
Here are several examples of legal liability:
Contractual liability in a service agreement. A marketing firm signs a contract to deliver advertising services to a client over a six-month period. If the firm fails to fulfill the terms—such as missing deadlines or underdelivering on promised services—it may be held legally liable for breach of contract. The client could sue for damages or demand the firm complete the agreed-upon services. This type of liability arises directly from the terms of the agreement and can result in financial settlement or enforced service completion.
Civil liability from a personal injury claim. A retail store neglects to clean up a spill, leading to a customer slipping and suffering an injury. The customer files a civil lawsuit, claiming negligence, and the court orders the store to pay $50,000 in damages. This legal liability arises from the store’s failure to maintain a safe environment, not a contract. The settlement may be covered in full or part by the store’s liability insurance.
Product liability for defective goods. A manufacturer produces a batch of electronic devices that overheat due to a design flaw, causing several customers to report property damage. A class-action lawsuit is filed, and the manufacturer is held legally liable for compensation and required to recall the faulty products. Although the company didn’t intentionally cause harm, civil liability still applies because the goods delivered were defective. The manufacturer may seek coverage through its product liability insurance.
Limited liability in a corporation. A tech startup organized as a corporation incurs significant debt but ultimately fails to meet its financial obligations. Creditors attempt to recover losses, but the legal liability is limited to the corporation itself—not its shareholders. Because of the corporate legal structure, shareholders are protected and cannot be personally pursued for the company’s debts. This principle demonstrates how legal liability can be voided or limited by the form of business ownership.