Most states have "care and custody" laws that determine the legal definition of owner for liability purposes. You should check your local laws to see what applies. For example, in Nebraska (and many places) if you agree to house a dog, by law, while the dog is in your care you are the owner for liability purposes. If a person takes a dog to a kennel and the dog bites someone while in their care, the kennel is liable. If a vet has a dog in their office without the owner present (like overnight for surgery, etc.) and the dog bites someone, the vet is liable for damages. It goes on and on. If a kennel employee, vet, groomer, dog walker, etc. suffer harm from an animal in their care, they cannot sue anybody because they are the "defacto" owner at the time of the incident. Legally, the neighbor is probably not obligated to pay you. Morally, she should and may if she is a good person. I would suggest that you revoke the permission to keep the dog kenneled at your house. If the dog gets out again and harms somebody else's pet or a person or causes a traffic accident, you will most likely be the one held liable. You will be the one charged with harboring a dangerous animal. The dog is her problem. Let her handle it. Maybe she can go board it someplace more secure.