Reviewed by Stefan Tirschler
Updated September 12, 2022
li·a·bil·i·ty | ˌlī-ə-ˈbi-lə-tē
Definition: The legal responsibility for one’s actions, in particular the responsibility to compensate a third party harmed by those actions.
“The court sought to determine who would assume liability for the accident.”
Liability refers to one party’s legal obligation to another party that they’ve injured, or whose property they’ve damaged.
When the legal process finds you responsible for harming another person a.k.a (bodily injury), or damaging another person’s property, that means you’re liable. Once you’re found liable, you’ll be legally obligated to compensate the victim in some way. Part of the legal process of determining liability also involves deciding what the compensation should be. Compensation of this type is referred to as “damages.”
Home insurance policies include coverage for the policy owner’s legal liability, in certain cases. When the insured person is found liable for injuring a third party, or damaging a third party’s property, their home insurance policy will cover the costs they are legally required to pay the victim—as long as the injury or damage is unintentional.
Home insurance policies never cover someone for intentional acts.
They also only cover liability to third parties. A “third party” is someone who is: 1) not covered by the insurance policy; and, 2) not the insurance company that sold the policy.
Basically, legal liability coverage is not meant to provide coverage when insureds under the same policy injure each other or damage each other’s property. For example, family members sharing a home are all covered under the same home insurance policy. So, if one family member injures another there’s no “third party” in the dispute, and thus no liability coverage for the incident.
Home insurance policies generally deal with two types of liability: Personal and premises.
Personal liability refers to instances where a person is found legally responsible for injury or damage as a result of their actions (or inactions). You can be liable for harming another person, or their property.
Gregory decides it’s time to remove the large, dying tree from his backyard before it falls over and damages his house. Ever the cheapskate, he decides to do it himself despite having no experience felling trees. He thinks it’ll be easy to get it to fall harmlessly into the lane behind the house.
Later that afternoon, Gregory’s neighbour Dinesh hears a loud crashing sound and goes outside to investigate. A very large tree has fallen and crushed his shed, its contents, and part of his fence.
Understandably, Dinesh wants Gregory to pay for all of the damage, which is quite significant. He sues Gregory to recover the costs. The legal process determines that Gregory is completely liable for the damage and orders him to pay for the repairs.
This is a case of personal liability because Gregory’s liability stems from something he did. He didn’t intend to destroy Dinesh’s shed, but the damage was still a result of his negligent actions.
Home insurance policies offer personal liability coverage for accidental damage or injury no matter where the accident takes place; it doesn’t have to take place at the insured’s home.
That’s in contrast to premises liability.
Home insurance policies also cover premises liability.
Premises liability comes into play if someone is injured because of an unsafe condition in your home, or the property it sits on (collectively known as the premises).
For example, if your front step is icy and someone slips and injures themselves, you could be liable as the owner of the home, even though you didn’t actually do anything to cause the injury. It’s expected that you take reasonable steps to make your home safe for visitors. If you don’t, you can be held liable when someone is injured on your premises.
Because home insurance policies cover this type of liability, home insurance providers want to see that you’re making your home a safe place. They may not want to insure a home that has a high balcony with no railing, for example—that’s a lawsuit waiting to happen.
To be legally liable for something, you first have to be found liable by a court of law.
Sometimes, this process is very straightforward. If you intentionally hurt someone, of course you’re liable for their injuries. Intentionally harmful acts aren’t really relevant when we’re talking about home insurance; home insurance policies never offer coverage for intentional acts. If you set fire to your neighbour’s gazebo because you don’t like them, you’re on your own.
Instead, home insurance policies offer liability coverage for accidental harm. You can be liable for accidental injury or damage if the legal process determines that you were negligent, and your negligence caused harm to someone else.
Negligence means you didn’t do what a “reasonable” person would be expected to do in a given situation. Much of the legal process in these cases involves determining if the accused acted reasonably.
Let’s go back to our earlier example of Gregory and his careless tree-cutting. His actions probably wouldn’t be considered “reasonable” at all. A reasonable person would know better than to cut down a large tree surrounded by homes and other structures without any prior experience cutting trees.
On the other hand, if you did do everything that could be reasonably expected of you, and an accident still happened, you might not be found liable for that accident.
Using the icy front step example: A reasonable person should know that they need to de-ice their home’s front step to keep visitors safe. Let’s say you shovelled and salted your step and put up a bright orange sign saying “WARNING: SLIPPERY,” and a visitor still slipped and injured themselves. You may not be liable for their injuries; the court might decide that the visitor should have been more careful.
Sometimes, both the injured and the accused will end up sharing liability; it’s possible both parties are partially responsible for an accident. Shared liability is common in motor vehicle accidents, but it can exist in many situations.
Ultimately, liability comes down to the “reasonable person” standard. You should always try to live up to the standard of care expected of a reasonable person. Not only does that reduce the risk of an accident occurring in the first place, it reduces the risk of you being liable for that accident.
Looking for another insurance definition? Look it up in The Insurance Glossary, home to dozens of easy-to-follow definitions for the most common insurance terms. Or, get an online quote in under 5 minutes and find out how affordable personalized home insurance can be.
About the expert: Stefan Tirschler
Stefan is responsible for underwriting leadership, market expansion, and product research and development for Square One's operations. Stefan has earned his Fellow Chartered Insurance Professional designation, and maintains a level 2 general insurance license in British Columbia, Alberta, Saskatchewan, Manitoba and Ontario. Stefan is also an Education Committee member and CIP/GIE instructor for the Insurance Institute of Canada.
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