If you take a close look at almost every liability insurance policy, you’ll see that “legally obligated to pay” is the coverage trigger. In other words, insurance won’t pay for something unless you are found to be legally liable for it.

But what exactly is legal liability? It is when you are legally responsible for a financial loss of another. This liability can arise out of:

  1. intentional torts;

  2. unintentional acts/negligence; and

  3. contracts.

In essence, you are deemed to be “legally liable” when you lose a civil court case to another individual, and the court determines you owe that person compensation. In this article, we’ll break down what you need to know about each type of legal liability.

What is an intentional tort?

An intentional tort is a wrongful act that is intentionally committed to another person, such as: assault, battery, slander, libel, embezzlement, false imprisonment, fraud, etc. The civil case of an intentional tort is brought by an individual-rather than the state, which would be found in criminal cases-and the punishment is financial compensation rather than jail time. While the state can bring charges against you in a criminal court, and conviction would require jail time or other forms of punishments, the individual can also take you to court themselves. It’s important to note that punishment in one court does not cancel out a case in the other form of court. This means getting sued civilly will not prevent the state from bringing charges criminally.

When the individual takes you to court themselves, it is a civil case and they are suing you for financial compensation only. Civil courts cannot enforce jail time the way criminal courts can. When someone sues you for an intentional tort, such as assault, they will not only have to prove you committed this act against them, but they will also have to prove damages. There are two different types of damages: compensatory damages and punitive damages.

Compensatory Damages

Compensatory damages are a financial amount that you will owe the person you harmed in order to make them whole. These payments can come in many forms. For example, if you punch someone in the face, that is a battery. If that punch breaks their nose and requires surgery, you would be ordered to pay the hospital bills. This is compensatory, because it prevents the hurt individual from facing a financial loss due to your actions.

Compensatory damages aren’t always so clear cut. Hospital bills provide a specific number, but not all losses can be quantified that easily. Let’s say you post false information about a business online, and as a result they lose a lot of customers. It’s impossible to say the exact amount the business would have made without that post, but that doesn’t mean you aren’t liable. They can still sue you, and the court will determine a reasonable amount of damages based on the revenue the business generated before versus after your post.

Punitive Damages

Punitive damages are even more difficult to quantify because they are financial payments designed to punish the perpetrator, rather than make the harmed person whole again. Punitive damages can be any amount, even if the person didn’t experience a financial loss due to your actions. For example, a false imprisonment case rarely is associated with a financial loss. If you intentionally trap a person  in a room for a period of time, and it was improper for you to do this, you could be liable for false imprisonment. Sometimes this person loses money because they were supposed to be working while they were imprisoned, or maybe they need therapy due to the emotion turmoil of the incident, but typically this type of case doesn’t have a financial loss component. This doesn’t mean you are off the hook, and the court can still award punitive damages, which are designed to punish you for your wrongdoing.

What is an unintentional tort?

An unintentional tort, also known as negligence, is an action you commit against another person on accident. This is the most common form of tort, and it is what most people look to insure against. When you get in a car accident, you are committing an unintentional tort; your car insurance covers the financial loss for that unintentional tort. To qualify as negligence, you must prove all four things: (1) duty; (2) breach of that duty; (3) causation; and (4) harm.

  • Duty within negligence is short for a duty owed to the individual. You may be asking, “If I hit someone with my car, how could I possibly have a duty to them? I don’t even know them!” As human beings, we owe a duty to all people to act reasonably; and while a car accident is commonplace enough that you would think it is reasonable, it isn’t deemed to be so. This duty can increase, but can never decrease. Meaning, you owe everyone a basic duty to be reasonable, but individuals you are closer to can be owed a higher level of duty. For example, you owe your child a higher level of duty than a stranger at the grocery store. If you don’t feed your child, that is negligent, but if you don’t feed that stranger, that is perfectly fine.

  • The next element is breach. This occurs when you fail to follow your duty of reasonable care. Regardless of whether you slightly or significantly breached your duty, this element is met. A breach will look different depending on what the duty is. Sometimes a failure to act can be a breach, while other times it takes an overt act for a breach to occur. A failure to act, such as failing to warn a customer of something dangerous on your property, can be a breach, just like the overt act of pushing your customer into harms way is a breach.

  • The next element is causation. It is not enough to merely breach your duty, you must be the cause of the harm to the person. If you have a duty and you breach that duty, and the person ends up hurt, but it isn’t because of you or your breach, you are not liable. This sounds self-explanatory, but most cases are fought on this element. Let’s say you own a store and a pot falls from a shelf and hits a customer on the head. You have a duty to your customers to keep your shop safe, which was obviously breached; and the customer was clearly harmed from the pot hitting them. But what caused the pot to fall? The customer will argue that you placed it in a dangerous spot, but you’ll say it was an outside factor, such as the customer climbing on the shelf to get something down, or maybe another customer knocking the pot off the shelf. While there may be other causes of action, such as premises liability, that would aid the customer in winning this type of case, their negligence case would fail if you were not the cause of the harm.

  • The final element is harm, and is fairly self-explanatory. This is either a financial or physical harm to the individual faces as a result of your actions. Almost any affect can be considered a harm, and this element is rarely disputed.

If you lose a negligence, or unintentional tort, case, you will be liable for damages, just like you would with an intentional tort. The damages are the exact same as intentional torts. However, punitive damages are more commonly awarded in intentional tort suits. This is because the courts are more inclined to punish you for intentional actions rather than accidental harms. That being said, it isn’t uncommon to see punitive damages in negligence cases.

What is a contract?

This question probably seems silly. Obviously, a contract is a legal document that’s been signed by both parties, agreeing to exchange services for money, right? Not necessarily. In actuality, the definition of a contract is far broader. Contracts can be either oral and written, and both are legally enforceable. While it is easier to prove a written contract exists, an oral contract is just as good as a written one, from a legal perspective. Sometimes even better, because it is clear that all parties knew every term of the agreement.

Whenever you breach a contract, you are legally liable for the damages. This can be calculated in various ways, depending on the case and the state where you live. Let’s say you tell your neighbor, “I will pay you $50 if you mow my lawn.” The neighbor mows your lawn, and you never pay him. You have breached a contract and your neighbor is entitled to compensation for his work. Just like with the cases described above, your damages can be either compensatory or punitive, depending on what the court awards.

When does liability attach?

Legal liability means you pay a financial amount to compensate for a wrongdoing on your part, whether intentional or accidental. But when does this shift from being a possibility, to a legally enforceable requirement to pay? That depends on the case. Ultimately, whether you settle the case or take it to trial, you are legally liable once the judge has signed off on an amount. In criminal law, this is called being found “guilty,” but is merely a liability in the civil world.

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How can I protect myself from legal liability?

There is no question that being held legally liable for a harm to another can be very expensive. The costs can stack up not only due to the amount you may be liable to pay the person, but also from the legal fees to defend your case. Insurance can help cover you against both intentional and unintentional torts, and provide coverage for legal fees, compensatory damages, and even punitive damages.

If you have questions about how to protect yourself from this type of case, give us a call, and one of our experts will review your risks and what coverages will best protect you.