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Vicarious liability

Vicarious liability is when you or your business are held financially responsible for the actions of another person or party. Most commonly, this is the legal framework at play when you are sued over mistakes made by your contractors, employees, or agents.

What is vicarious liability?

Just as living vicariously through someone else involves taking pleasure in another person's exploits, vicarious liability means that you can legally be held responsible for another person's wrongdoing. This is possible because of how certain legal relationships work.

Here's an example: say one of your employees mops up a spill at your cafe but forgets to put out a “wet floor” sign. A customer comes in and slips on the wet patch. If the fall leads to an injury, the customer could sue your business for damages. Even though your employee's actions led to the incident (and even if you reminded the employee to put up the sign), you and your business could be considered responsible in the eyes of the law.

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When is your business vicariously liable?

As a business owner, you could be vicariously liable for the actions of:

Your employees. In order for liability to pass from an employee to you or your business, the employee must be acting within the scope of their job or professional duties. Even if an employee acts against directions you give them, you could be held liable for the damage their action (or lack of action) causes.

Agents you work with. “Agent” is a classification that includes anyone who works on behalf of someone else (the principal). Agents can be either independent contractors or employees, and they have the authority to alter or create legal relationships between the principal and third parties. Typically, in vicarious liability cases involving the agent-principal relationship, both the agent and the principal assume some liability, meaning that the person harmed by the wrongdoing can seek damages from both parties.

Independent contractors. One reason some business owners choose to work with independent contractors is to avoid exposure to vicarious liability. While the general rule holds that principals (you) are not liable for work done by independent contractors, there are a few situations in which vicarious liability can pass up the chain. These include instances when you are negligent (e.g. you hire a contractor who isn't qualified for the work they're required to do); when you hire a contractor to complete tasks that, by law, you're required to do yourself; and when you hire a contractor to complete work that is inherently dangerous to third parties.

Luckily, business insurance protects you in cases of vicarious liability.

What is vicarious liability insurance?

Vicarious liability is an everyday risk for business owners, but that doesn't mean your bottom line has to suffer because of mistakes or oversights that other people make. Various types of business insurance specifically protect businesses from the costs of both direct and vicarious liability.

These policies usually cover the expense of defending yourself against vicarious liability claims:

General liability insurance protects you from the costs of lawsuits over personal injuries or third-party property damage caused by you or your employees or from incidents that happened on your business property.

Errors and omissions insurance, also called professional liability insurance, shields you from the costs of mistakes and oversights you and your team make while performing your work (or from the costs of lawsuits over perceived mistakes).

Workers' compensation insurance covers the cost of medical bills and lost wages if you or an employee experiences a workplace injury.

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Updated: April 29, 2022
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