Risk of Loss Law and Legal Definition

Risk of loss is a term used in contract law to refer to the liability of a carrier, borrower or user of property or goods, or an insurance company to compensate if there is damage or loss. Between the time a contract is made and the time it is fully performed, goods identified to the contract may be lost, stolen, damaged, or destroyed. Risk of loss law determines whether the buyer or seller is financially responsible for the loss.

The Uniform Commercial Code, which has been adopted in some form by nearly all states, allocates the risk of loss based on which party has control of the goods, which party is more likely to insure the goods, and whether a party has breached the contract.