Statutory liability is a legal term meaning that someone can be held responsible for a specific action or omission because of a related law that is not open to interpretation. This is a generic term that can apply to any field, not just finance. Within the world of finance, it may apply to real estate transactions, stockholder obligations, or the behavior of a board member.

Key Takeaways

  • Statutory liability is a legal term that refers to holding an individual, company, or other entity accountable for an action or omission because of a related law.
  • Companies can be held statutorily liable for violations of a variety of laws surrounding common business activities.
  • Examples include laws regarding the environment, workplace safety, consumer privacy, licensing, and permits.
  • Different types of statutory liability include professional liability, employee benefits liability, and medical malpractice liability.

Understanding Statutory Liability

Businesses are responsible for complying with a myriad of local, state, and federal laws and regulations. Accidental breaches of the law can put a company at risk for payments in lawsuits, compensatory damages, and settlements to resolve claims.

Due to statutory liability, companies can be held accountable should they be found lacking in their adherence to laws regarding a variety of business activities. These include (but are not limited to) laws and regulations regarding the environment, workplace safety, advertising, licensing and permits, zoning restrictions, and consumer privacy.

While most companies will attempt to avoid breaking the law, it can be challenging to do so given the volume of regulations to follow along with the need to keep updated as regulations change. Business laws can be ambiguous and subject to multiple interpretations. Because of this, many companies hire business lawyers to help them avoid situations that could lead to statutory liability.

As part of their business development plan, many startup businesses and novice entrepreneurs will seek legal advice early on to ensure their company structure and strategies comply with government regulations.

Types of Statutory Liability

The legal responsibilities of a company or individual can extend to a number of different types of statutory liabilities. Here are just a few examples.

  • Professional liability: A company that offers professional services (such as accountants, financial advisors, or lawyers) may be held liable should it be deemed they provided inadequate or erroneous advice or services.
  • Employee benefits liability: Companies can be held accountable should they fail to meet federal laws regarding employee benefits, such as health insurance.
  • Vehicle liability: Companies can be held responsible for property damage and medical bills should a company vehicle cause an accident.
  • Media liability: Companies that violate media or advertising laws face potential lawsuits filed on behalf of the damaged party. An example of this would be a lawsuit for copyright infringement.
  • Medical malpractice liability: Providers of healthcare services face malpractice liability should their omission or negligent act cause harm to a patient.

Examples of Statutory Liability

In New Zealand and Australia, businesses commonly purchase statutory liability insurance to protect themselves from the fines, penalties, and legal fees that can result from an accidental breach of law. These may include occupational health and safety laws, environmental laws, and employment laws.

All organizations in all industries have exposure to potential liabilities that may arise from investigations or court cases brought by regulatory bodies for alleged breach of statute. Statutory liability policies can cover liabilities that arise out of unintentional violations under a range of New Zealand laws. Some of those statutes include:

  • Consumer Guarantees Act
  • Building Act
  • Fair Trading Act
  • Health and Safety in Employment Act 1992 and amendments

Personal Statutory Liability Exposure

While corporations in New Zealand can face risks for prosecution for breach of laws, directors, executives, and employees can also experience personal liability exposure in the New Zealand court system. The New Zealand court system can impose a range of penalties, such as fines and even imprisonment. Statutory liability insurance can indemnify organizations and individuals against the costs associated with an investigation or prosecution for unintentional breaches of the statute. 

Depending on the policy, coverage might include:

  • Judgments (fines)
  • Defense costs
  • Reparations
  • Representation costs at official inquiries or complaints tribunals

It is common for offenses that allege breach of the statute to operate on a "strict liability" basis, which means it does require intent to be proven for a prosecution to be successful. Coverage protects against the unexpected, not the outcomes of intentional misconduct or ignorance of the law. As such, criminal allegations or liability that come from deliberate, willful, or reckless acts or omissions do not qualify for protection under such insurance.