Nov 21, 2019
How to Protect Your Business from Vicarious Liability Claims
Vicarious liability refers to situations in which your business could be held responsible for the actions and omissions of your employees, contractors, or partners.
It can apply to anything from injuries and damages to sexual harassment in the workplace or hiring discrimination.
Who Is at Risk of Vicarious Liability Claims?
Any small business or large corporation that has employees, uses contractors, or even has volunteers is potentially at risk. As long as you have someone else representing you in an official capacity, you can be held liable for their purposeful actions or their omissions.
While that may sound unfair, in the eyes of the law it means that your business didn’t do enough to prevent potential incidents, i.e. didn’t have the right policies and protocols in place to prevent potential harm to third parties.
When Could Your Business Be Considered Vicariously Liable?
Your business can be held liable for the actions of:
For liability to pass from an employee to you, he or she must be acting within the scope of their professional duties. Even if an employee acts against your directions, but is performing tasks connected to their duties, you could be held liable for the damage their actions cause.
Many business owners think that working with independent contractors absolves them of any vicarious liability. While this generally holds true, there are a few situations in which vicarious liability can be passed on from the contractor to the business. These would include potential negligent acts on your part when hiring a contractor; (e.g. you hire a contractor that doesn’t have the necessary qualifications or permits for the work they are doing for you).
Additionally, you can be held liable if you hire a contractor to complete tasks that you are required by law to do yourself, or you know are inherently dangerous to others.
Partners act with a considerably higher degree of autonomy compared to employees. However, if the partners are held liable for injury or damages while acting for the benefit of the partnership they serve, the partnership may be held vicariously liable as well.
Directors and Officers
Directors and officers act on behalf of the corporation and carry out their duties to benefit it. Consequently, a corporation they are serving can be held vicariously liable for the wrongdoings of its directors and officers.
Highly-Publicized Examples of Vicarious Liability Claims in Practice
- An Oklahoma federal court judged in favor of a Telephone Consumer Protection Act (TCPA) plaintiff on vicarious liability issues, ruling that NorthStar Alarm Services and Yodel Technologies were liable for calls carried out by a phone lead generator on their behalf. See: Oklahoma Federal Court Sides With Plaintiff’s Vicarious Liability TCPA Claim
- A former publicist for Chicago’s largest restaurant company, Lettuce Entertain You Enterprises (LEYE), alleged she was sexually assaulted by the corporation’s wine director and then retaliated against after she reported it See: Chicago’s Biggest Restaurant Group Sued for Sexual Harassment
- Parents of two children killed sued the Pan-O-Gold Baking Company despite the company having already been cleared of any wrongdoing. Accusations included two counts of negligence and one count of vicarious liability. See: Wrongful death lawsuit filed against trucker not facing charges
Protecting Your Business
Vicarious liability is a potential risk that business owners have to face daily. However, like most business risks, it can be mitigated and managed with the right insurance coverage. Here are some of the insurance policies that can help protect your business:
General Liability Insurance: A general liability policy will protect you if you are sued for personal injuries or property damage that arise from your business operations. It will cover legal costs, associated medical costs, and even potential settlements.
Errors & Omissions Insurance: Also called professional liability insurance, it will protect you from vicarious liability in claims related to malpractice, errors, omissions, and negligence caused by parties acting on your behalf.
Directors & Officers (D&O) Insurance: D&O coverage will protect the company from claims that its management may have breached fiduciary duty, mismanaged company assets, or was at fault for misrepresentation.
Employment Practices Liability Insurance (EPLI): An EPLI policy will cover the company for legal costs and settlements for vicarious liability claims related to employment issues such as improper supervision, harassment, and discrimination.
If you need more help or information about protecting your business, you can reach out to our team of expert brokers to learn more.