What is Liability?

Sherry Holetzky

In legal terms, the word liability refers to fault. The person who is at fault is liable to another because of his or her actions or failure to act. One example is in the case of a crime. The liability of the offending party may include providing restitution for damage to property or paying medical bills in the case of physical injury.

Liability insurance pays for repairs, medical treatment or funeral costs of others involved in an accident, but does not cover the policyholder's injuries or damage.
Liability insurance pays for repairs, medical treatment or funeral costs of others involved in an accident, but does not cover the policyholder's injuries or damage.

Another example of liability in the legal realm is an automobile accident. The person who caused the accident, through action or omission, is liable to the injured party. Liability insurance exists for just such a purpose. It covers the expenses of the injured party, including damage to the vehicle or other property as well as a certain amount of medical expenses, and may reimburse the injured party for attorney's fees if civil action is required.

Failure to post warning signs that results in injury is a neglect of duty omission.
Failure to post warning signs that results in injury is a neglect of duty omission.

In accounting terms, liability describes an obligation. It refers to money owed to complete a transaction, debt that has yet to be paid, or products or services that have been paid for but have not yet been rendered. There are two general classifications to sum up these types of liability: long term and short term. Long-term describes debt paid out over more than one year, while short-term liability refers to debt paid within a year or less.

Most states require drivers to carry at least a minimum amount of liability coverage.
Most states require drivers to carry at least a minimum amount of liability coverage.

Some other examples of liability include money that is yet to be paid out, such as benefits from a life insurance policy or a settlement, either one of which represents a liability for the insurance provider. An employee's pension, as well as any other savings or retirement fund, is also considered a liability for a company. For the consumer, liabilities may include a home mortgage, second mortgage, line of credit, lien of any kind or car payment. Of course, for the entity to which these monies are owed, each item generally represents an asset.

Premises liability insurance can protect the owners of a work zone if workers become injured on the site.
Premises liability insurance can protect the owners of a work zone if workers become injured on the site.

Overall, liability simply describes some form of obligation or responsibility. It represents an outstanding debt, products or services that have yet to be provided, or acknowledgment of responsibility and payment provided for damage caused through actions or negligence.

Product liability ensures people won't get sick after consuming food or drinks.
Product liability ensures people won't get sick after consuming food or drinks.
Premises liability insurance may be used to cover medical costs of someone injured in an accident.
Premises liability insurance may be used to cover medical costs of someone injured in an accident.

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Discussion Comments

anon129090

I am opening a new company. I would like to know how should the company be formed to stop creditors from getting to the funds the new company is making.

(LLc., Corporation, INC., etc.) Thank you, M

anon64385

The pipes in my heater burst and flooded my apartment. The landlord wants me to pay the maintenance man, including overtime, for clearing out the water. Who is liable for the damage costs?

anon43834

Explain liability in terms of accounting in simple terms with a simple example.

anon35605

what does it mean when you say, your car liability is due on 01/08/09

anon27596

I was wondering if anyone has had any success enforcing liability on a school for an injury resulting from unsupervised athletic activity on school grounds.

I got hit in the head from behind with a soccer ball which was kicked by a kid waiting to practice after a game I was watching.

ad1234

what is a business? what are the steps or what factors to be consider in making a business plan? or the process?

anon12103

If a homeowner hires a company to put on a deck over their front porch and a new roof and as a result, the roof is not done correctly, there are holes where critters are getting in, it is leaking into the house. They did not flash the deck ledger board and water now comes into the windows and onto a laminate flooring that is getting warped - does Liability insurance cover to have these conditions fixed?

Davisdavis03

I was wondering if your car is stolen is there any coverage only having liability insurance?

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