In law, a person is legally liable when he/she is financially and legally responsible for something. Legal liability concerns both civil law and criminal law. Legal liability can arise from various areas of law, such as contracts, tort judgments or settlements, taxes, or fines given by government agencies. Liabilities may be covered by insurance, although typically insurance covers liability arising from negligent torts rather than intentional wrongs or breach of contract. Liability may also be imposed[by whom?] joint and severally in certain cases. Liabilities arising from a contract to borrow money are debt.
- Under English law, with the passing of the Theft Act 1978, it is an offense to evade a liability dishonestly. Payment of damages usually resolves the liability. Vicarious liability arises under the common law doctrine of agency – respondeat superior – the responsibility of the superior for the acts of their subordinate.
- In commercial law, limited liability is a form of business ownership in which business owners are legally responsible for no more than the amount that they have contributed to a venture. If, for example, a business goes bankrupt, then an owner with limited liability will not lose unrelated assets such as a personal residence (assuming they do not give personal guarantees). This is the standard model for larger businesses, in which a shareholder will only lose the amount invested (in the form of stock value decreasing). (For an explanation, see business entity.)
- Manufacturer's liability, a legal concept in most countries, reflects the fact that producers have a responsibility not to sell a defective product. See product liability.
Economists use the term "legal liability" to describe the legal-bound obligation to pay debts.