The second issue is this thing about your level of responsibility. When coppers sit around talking about pursuits, another thing commonly heard is, "How can I be responsible for what the fleeing driver does? I'm not driving his car!" The answer to this one is that you're not responsible for what the fleeing bad guy does--you're responsible for what you do. If you continue an excessively risky pursuit, and someone is injured as a result, you might be held responsible. In essence, the rule here is that when a pursuit becomes unreasonably risky, you are responsible for disengaging, therefore ceasing the pursuit.
Deciding What is Risky
How do you decide what is unreasonably risky? That's the toughest question here. You could think about it all day, and still not be able to put your finger solidly on it.
In the case Graham v. Connor, the U.S. Supreme Court addressed the issue of objective reasonableness in the use of force. The Justices said that the, "...test of reasonableness under the Fourth Amendment is not capable of precise definition or mechanical application...", but that it must be viewed from the perspective of the reasonable officer on the scene, in light of the totality of the circumstances that he or she faces. While that case, and the objective reasonableness standard, is not applicable here (except in cases of forcible termination--another story altogether), the language chosen by the Court could certainly be appropriate.
The definition of reasonableness in a pursuit is not capable of precise definition or mechanical application. It really comes down to "you'll know it when you see it." In effect, although that definition seems soft, it's the way you do lots of things every day. Any time you "go with your gut," or just try to do the right thing, you're applying this standard. You are considering a situation as another person might, in light of the totality of the circumstances. Considering everything, you decide on a course of action, and you implement it. Monitoring the situation as it evolves, you adjust your actions as the circumstances change.
You do your best to keep everyone safe (including yourself), and you try to do the right thing. That's the real standard that you should strive for when you're managing a pursuit or any other driving situation.
Can you get sued? Of course. Any time you injure anyone, that possibility (probability?) exists. But by being safe, being smart, and doing your best to do the right thing, you'll leave yourself in a better position to defend your actions. How can anyone blame you for that?