Vicarious liability

It’s important to understand the difference:

• Direct liability: You caused the harm yourself (e.g., you personally damaged a client’s property)
• Vicarious liability: Someone else caused the harm, but your business is responsible because they were working for you

This is why having employees increases your legal exposure, even if you’re careful.

If you have employees or agents, these are the kinds of situations that can expose your business to vicarious liability:

• A cleaning service employee slips and injures a customer after mopping the floor and forgetting to post a warning sign.
• A delivery driver causes a car accident while making business deliveries.
• A consulting firm staff member makes a discriminatory or harassing comment to a client.
• An advertising agency employee posts defamatory or copyrighted content online on behalf of your business.
• An HVAC technician damages a customer’s property while performing a service call.

Even if the action was careless, unintentional, or against your internal rules—your business can still be held responsible.

You can’t eliminate all risk, but you can reduce it:

• Hire carefully: Run background checks when appropriate, verify licenses and credentials, and document your hiring process.
• Train your team: Provide clear safety procedures, set expectations for customer interactions, and offer regular training refreshers.
• Create written policies: Document how work should be done, keep records of training and performance reviews, and use incident reports when problems occur.
• Supervise and correct early: Address risky behavior right away, enforce policies consistently, and keep communication open.

These steps don’t just reduce accidents, they also strengthen your defense if a claim ever arises.

Insurance doesn’t prevent lawsuits, but it can protect your business from the financial impact.

Policies that commonly help with vicarious liability claims include:

• General liability insurance: Covers third-party bodily injury, property damage, and personal injury claims that result from your employees’ actions, such as customer injuries or damage to client property.
• Professional liability insurance: Also called errors and omissions (E&O) insurance, this policy covers claims that your business made a mistake, gave bad advice, or failed to deliver services properly, even if the error was made by an employee or agent.
• Employment practices liability insurance (EPLI): Handles claims related to workplace issues like harassment, discrimination, retaliation, and wrongful termination involving your staff.
• Commercial auto insurance: Covers accidents, injuries, and property damage caused by employees while driving company-owned vehicles.
• Business owner’s policy (BOP): Bundles general liability and commercial property insurance into one cost-effective package for many small businesses.

A single policy won’t cover everything, which is why many small businesses use a combination of coverages based on their risk profile.