Back to Glossary

Entry · Legal

Negligence

Negligence is the failure to act with the level of care that a reasonable person would have used in the same circumstances. It is a foundational idea in tort law and the basis for many injury and property damage claims.

A claimant usually must prove duty, breach, harm and causation.

From the Money Master HQ dictionary, founded by Shihan Sheriff (FCMA, VP of Finance at Nomod, CFO at Esanjo Ventures). How these definitions are written.

What it means

Cornell's Legal Information Institute defines negligence as the failure to behave with the level of care a reasonable person would have exercised under the same circumstances. Either actions or omissions can be negligent, but an omission counts only when the person had a duty to act.

It is a foundational concept of tort law. The same source lists the elements typically required to prove it.

These are a legal duty owed by the defendant to the plaintiff, a breach of that duty, harm to the plaintiff, proximate cause and cause-in-fact. Duty comes from the idea that people should not cause harm to others.

Wex says a duty to act reasonably can arise where the defendant created a risk, voluntarily undertook to protect the plaintiff, or knew or should have known the conduct would cause harm. Certain relationships, such as business owner and customer or doctor and patient, create duties of care.

Breach is judged against a reasonable person. Some US courts use the Hand Formula, from Judge Learned Hand in United States against Carroll Towing.

If the burden of precautions is less than the probability of loss times the severity of loss, the defendant breached the duty. In that 1947 case, the court said an owner's duty to guard against injuries from a barge breaking away is a function of three variables.

These are the probability that she will break away, the gravity of the resulting injury and the burden of adequate precautions. Harm usually must be bodily harm or harm to property.

Wex says harm that is solely economic usually will not satisfy the element, and some states recognise emotional distress. Proximate cause looks at foreseeability, and cause-in-fact asks whether the harm would not have occurred but for the conduct.

Plaintiff conduct and intervening factors can affect the analysis. This entry gives a US view as one example, and standards vary by jurisdiction.

In practice

Real-world examples.

1

Example

A fictional shop owner knows a spill is on the floor and leaves it for an hour. A customer slips and breaks an arm. The owner had a duty to the customer, and leaving the hazard may be a breach.

2

Example

A fictional driver looks away at a phone and hits a parked car. The driver's conduct is the cause of the damage. The owner of the car can claim for the harm to property.

3

Example

A fictional homeowner takes reasonable steps to clear a path and a visitor still trips on a hidden root. A court may find that the owner met the standard of a reasonable person. Not every accident is negligence.

Formula

Calculation

Hand Formula: the defendant breached the duty if B < P x L. B is the burden of precautions, P is the probability of loss and L is the severity of loss. Worked example with assumed figures: a precaution costs $800, the chance of an accident is 2% and the loss would be $100,000. P x L = 0.02 x $100,000 = $2,000. Because $800 is less than $2,000, skipping the precaution points to a breach. If the precaution cost $5,000 instead, B is greater than $2,000 and the formula would not point to a breach. The figures are assumptions, and a court weighs the formula alongside the wider facts.

Case study

Seen in the real world.

This case study is fictional and illustrative. A small apartment landlord knows the stair handrail is loose. Fixing it would cost $800, and a fall could lead to injuries costing $100,000. The landlord delays the repair for months. A tenant leans on the rail, it gives way and the tenant is hurt.

The tenant claims negligence. The tenant must show a duty, which the landlord and tenant relationship supports, a breach, harm, and causation. The cheap fix and the known risk point toward breach. The landlord may argue the tenant leaned on it carelessly. The court would weigh the plaintiff's conduct, and the rules on that vary by jurisdiction.

Applying the Hand Formula with assumed figures, a 2% chance of a $100,000 injury is an expected loss of $2,000, against a repair of $800, so the burden of precaution was well below the expected harm. Had the repair required a $5,000 rebuild, the comparison would favour the landlord. The arithmetic does not decide the case, but it shows why courts treat cheap, obvious precautions that are skipped so seriously.

Watch out

Common mistakes.

  • Assuming every accident is negligence, when the defendant must have breached a duty of reasonable care.
  • Ignoring causation, since the breach must be both the proximate cause and the cause-in-fact of the harm.
  • Expecting recovery for pure economic loss, when many courts require bodily harm or property harm.

Questions

People also ask.

What is negligence?

It is the failure to act with the care a reasonable person would use in the same circumstances. It is a basic concept of tort law.

What must a claimant prove?

The elements typically include a legal duty, breach, harm, proximate cause and cause-in-fact.

What is the Hand Formula?

It is a test used by some courts. A defendant breaches the duty if the burden of precautions is less than the probability of loss times its severity.

Was this explanation helpful?

From the founder's library

Accounting Fundamentals: A Non-Finance Manager's Guide to Finance and Accounting, by Shihan Sheriff

Take it further with the book.

Build your financial confidence beyond this definition. Shihan's full-length guide, Accounting Fundamentals, takes the same plain-English approach and turns it into a complete, practical playbook for non-finance managers, business owners and students - with chapter-end quiz answers and presentation slides included.

US$2.24US$2.99

25% off with code MMHQ25, applied at checkout. Priced in USD - checkout may show the equivalent in your local currency.

View the book and save 25%
Last updated · October 8, 2026
Browse all terms →

Disclaimer

The information provided in this finance dictionary is for educational and informational purposes only. It should not be construed as financial, investment, legal, or tax advice. Always consult with a qualified professional before making any financial decisions. Money Master HQ makes no representations or warranties about the accuracy, completeness, or suitability of this information. Use of this content is at your own risk.