VICARIOUS LIABILITY INSURANCE

VICARIOUS LIABILITY INSURANCE

Vicarious liability is a common risk for business owners, but that doesn’t mean your bottom line has to suffer; as a result of other people’s mistakes or oversights. Various types of business insurance specifically protect businesses from both direct and vicarious liability costs.

What is Vicarious Liability Insurance

Vicarious liability is a situation in which one party holds partly responsible for the unlawful actions of a third party. The third-party bears its own share of the liability as well. Vicarious liability can arise when one party suppose to be responsible for the third party; but is negligent in carrying out that responsibility and exercising that control.

Understanding Vicarious Liability Insurance

For example, an employer is hold liable for an employee’s illegal actions, such as workplace harassment or discrimination. An employer is also hold liable if an employee negligently, inappropriately operates equipment or machinery; resulting in property damage or personal injury.

Vicarious Liability Insurance Examples

If a construction worker mishandles a crane’s controls and topples the wall of a nearby building; that was not on schedule to be work on, the company in charge of the construction will almost certainly face vicarious liability. If an engineer loses control of a train, and it proceeds down the tracks on its own, the company; that owns and operates the train may be held vicariously liable for any damage or injuries caused by the runaway locomotive.

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Furthermore, in the case of the Exxon Valdez oil spill, Exxon Shipping Company was hold vicariously liable; for a chain of events that resulted in 10.8 million gallons of crude oil spilling into the sea; affecting the shore. Among other things, the company was also held responsible for the captain’s lack of supervision; fatigue among crew members onboard the oil tanker, and the condition of radar equipment that could have prevented; the ship from running aground.

In the case of the Exxon Valdez oil spill, the Exxon Shipping Company came under vicarious liability for the series of events that led to 10.8 million gallons of crude oil spilling into the sea and affecting the shore. Among other factors, the company was hold accountable for lack of supervision on the captain, fatigue among crew members onboard the oil tanker, as well as the condition of radar equipment that might have helped prevent the ship from running aground.

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However, because of the multiple appeals, changing award amount, and the gray area of maritime law rule of a shipowner; being liable for an employee’s actions, this is a complicated example of vicarious liability.

Even if the employer did not commit the unlawful act, the employer is hold liable because; it is hold responsible for its employees’ actions while on the job and is thought to be capable of preventing; limiting any harmful acts committed by its employees. By taking reasonable precautions to prevent illegal behavior, the employer may be able to avoid vicarious liability.

Vicarious Liability Insurance Coverage

You, as a business owner, may be held vicariously liable for the actions of:

Your workers.

To pass liability from an employee to you or your company; the employee must be acting within the scope of their job or professional duties. Even if an employee disregards your instructions, you may hold to shoulder liable for the consequences of their actions (or inaction).

Agents you work with. 

The term “agent” refers to anyone who works on someone else’s behalf (the principal). Agents can also be independent contractors or employees with the authority to change or create legal relationships between; the principal and third parties. In most vicarious liability cases involving the agent-principal relationship, both the agent and the principal bear some liability; which means that the person harmed by the wrongdoing can seek compensation from both parties.

Independent contractors. 

One reason some business owners prefer to hire independent contractors is to avoid vicarious liability. While the general rule is that principals (you) are not liable for the work of independent contractors; there are a few instances where vicarious liability can pass up the chain. These include instances where you are negligent; when you hire a contractor to complete tasks that you are also supposed to do yourself by law; and when you hire a contractor to complete work that is inherently dangerous to third parties.

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Exemplifications of Vicarious Liability Insurance Claims in Practice

  • A former publicist for Lettuce Entertain You Enterprises (LEYE), Chicago’s largest restaurant company; claimed she was sexually assaulted by the corporation’s wine director and then retaliated against after reporting it.
  • Despite the fact that the Pan-O-Gold Baking Company had already been clear of any wrongdoing; the parents of two children killed sued. There were two counts of negligence and one count of vicarious liability.

Vicarious Liability in Insurance

Vicarious liability refers to circumstances in which your company may be hold liable for the actions; omissions of its employees, contractors, or partners. It can apply to anything from bodily harm and property damage to workplace sexual harassment and hiring discrimination.

Who Is Liable for Vicarious Liability Insurance Claims?

Any company that employs people uses contractors, or even has volunteers is potentially vulnerable. You can also be hold responsible for someone else’s intentional actions or omissions as long; as they are representing you in an official capacity.

While this may appear to be unfair, in the eyes of the law, it means that your company did not; do enough to prevent potential incidents, i.e. did not have the proper policies; protocols in place to protect third parties.

Examples of Vicarious Liability Offenses

There are numerous actions/behaviors that can cause harm and for which an employer may be hold vicariously liable. They include the following:

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  • Copyright infringement
  • Defamation
  • Harassment (sexual or otherwise)
  • Slander
  • Breach of confidence
  • Harassment
  • Physical abuse/infliction of bodily harm
  • Abuse of the mind

Third-Party Offenses and Gray Areas of Vicarious Liability

There is a lot of ambiguity surrounding what constitutes harm. Third-party vicarious liability can arise if it can be in the form of a demonstration that a client or customer; is harm in the name of the company in question. It’s also important to note that an employer can still be hold vicariously liable for an employee’s actions even after the departure of the offending employee. There’s also a lot of uncertainty about when vicarious liability should and does end.

Protecting Your Business

Vicarious liability is a potential risk that business owners must deal with on a daily basis. Among the policies that will protect your company is:

  • General Liability Insurance: If you are sued for personal injuries or property damage caused by your business operations; a general liability policy will protect you. It will cover legal fees, medical expenses, and even potential settlements.
  • Errors and Omissions Insurance: Also known as professional liability insurance, it protects you from vicarious liability in claims involving malpractice; errors, omissions, and negligence caused by third parties acting on your behalf.
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  • Directors & Officers (D&O) Insurance: D&O insurance protects a company from claims that its management breached a fiduciary duty; mismanaged company assets, or was negligent in making a misrepresentation.
  • Employment Practices Liability Insurance (EPLI): An EPLI policy will reimburse the company for legal fees and settlements resulting; from vicarious liability claims relating to employment issues such as improper supervision, harassment, and discrimination.

Why Vicarious Liability Exists

Outside the employee/employer relationship, vicarious liability exists in areas such as the medical field and business partnerships. On a much smaller scale, anyone who owns a vehicle is vicariously liable for the actions of anyone; they allow to operate it.

The reality is that vicarious liability – and all of its gray areas – can lead to frivolous, ridiculous; unfair legal actions against employers, businesses, or relatively innocent or unknowing parties.

Particular Considerations

When a child acts negligently, this is another common source of vicarious liability. The parent may be held vicariously liable for the child’s actions in some cases. One scenario in which this could happen is if a child injures or kills someone while driving.

Frequently Asked Questions

What is the principle of vicarious liability?

In general, a person is liable for his own wrongdoing but bears no responsibility for the work of others. The general rule of vicarious liability is that one person may be held liable for the actions of another. This is referred to as “vicarious liability” in the law.

What is vicarious liability and why is it a concern for business people?

Employers are held liable for their employees’ wrongful, negligent, or intentional tort actions while acting in the course of their employment under vicarious liability.

Is vicarious liability strict liability?

A type of strict liability (legal responsibility that does not require the person seeking recovery to prove fault) in which an individual is held accountable for the actions or in actions of another person with whom he has a special relationship. A parent-child relationship is an example of a special relationship.

What are the two basic forms of vicarious liability?

Vicarious liability may apply in a variety of situations in which someone other than the person who caused the damages has control, direction, or ownership of the situation. Principal liability and parental liability are the most common “other” types of vicarious liability.

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