What is a Contingent Liability?

A contingent liability provides coverage for losses to a third party for which the insured is vicariously liable. There are three types of contingent liabilities: 

1. Probable - can be reasonably estimated to occur (and must be reflected within financial statements).
2. Possible - are as likely to occur as they are to not occur (and need only be disclosed in the financial statement footnotes)
3. Remote - are extremely unlikely to occur (and do not need to be included in financial statements at all).