An organization may become liable for its own conduct or for the conduct of those whose responsibility lies legally on the organization, Responsibility of organization arise either under common law or statutory law. Under both common and statutory law, an organization can incur liability under contract law, tort law or criminal law.
Liability loss exposures arise when an individual or organization commits a legal wrong. All legal wrongs have basically four elements. The first is legally protected interest, such as in performance of a contractual promise, freedom of movement, protection of property, security of reputation, economic freedom etc. The second element of legal wrongful assault of such interests such as breach of a contract, crimes, negligence, intentional interference etc. The third element is the harm caused the wrongful act done by the organization and the last element is the proximate cause between the wrongful invasion and the harm. Proximate cause is basically the main cause which leads to an event without which that event would not have occurred.
Legal sanctions or remedies will then be applied to the organization, if they commit a legal wrong. These remedies can be the obligation to pay the damages, to complete specific performance of a contract, injunction to perform a wrongful conduct etc. The remedy imposed by the court will depend upon whether the liability is imposed under contract law, tort law or criminal law and it also depends upon the scenario that how the effected party can be best served.
Unfavorable financial consequences will be imposed on the organization while complying with the remedies and sanctions. These financial losses include fines, money paid for verdicts, complying with injunctions of courts etc. Even if at the end of all the court proceedings, it is proved that an organization was not at fault then too the organization suffers loss, the costs will be incurred at investigation, loss of future earning, the time will be wasted and the most important thing will be that the image of the organization will be adversely affected.
Exposures to liability loss arise under common law or the statutory law, common law is a set of principles which is applied to all, this law is derived from prior judicial ruling whereas statutory law consists of statutes, ordinances and regulations enacted by legislative, executive and administrative bodies within a local state or national jurisdiction.