What Is Vicarious Liability Insurance?

Vicarious liability insurance protects businesses from being held legally responsible for the negligent or harmful actions of their employees, contractors or others acting on their behalf. Simply put, it protects a business against claims where it is vicariously liable, even if it wasn’t directly involved in the incident. Typical scenarios include employee negligence or mistakes that result in harm or property damage.

Vicarious liability arises when a business or employer is held responsible for the wrongful actions of someone under its control or direction, such as employees or independent contractors. For example, the employer can be deemed vicariously liable if an employee causes an accident while performing their duties. It is based on the legal principle of "respondeat superior," meaning "let the master answer."

The process begins with proving a relationship between the business and the individual who committed the act. Courts often examine whether the individual acted within the scope of their duties and furthering the employer's interests. 

Employers are usually not responsible for actions employees take outside their job duties, like running personal errands during work hours. However, exceptions can occur when the employee's actions somehow benefit the employer or are loosely connected to their work responsibilities. These cases can be more challenging to define and may lead to legal disputes.

A business becomes vicariously liable when its employees or agents cause harm while acting within their roles. The following circumstances highlight when a company may face vicarious liability negligence claims:

• Employee negligence while performing job duties: Businesses are often liable for actions taken by employees while performing their assigned tasks. For example, if a delivery driver employed by a company causes a car accident while on their delivery route, the employer may be liable for damages.
• Independent contractors acting on behalf of the business: A business might also face liability for independent contractors’ actions if their work is closely monitored or controlled by the employer. For instance, if a contractor hired to install equipment on a client’s premises damages property due to improper installation, the hiring company may bear responsibility.
• Harassment or misconduct in the workplace: When harassment or misconduct occurs, and the employer has not taken adequate measures to prevent it, they can be held vicariously liable. For example, suppose a manager harasses an employee, and the company ignores prior complaints. In that case, the employer may face significant legal and reputational consequences.
• Improper supervision of subordinates: If a business fails to adequately supervise its employees or agents, it may inadvertently create situations where negligence or harm occurs. For instance, a lack of safety training for warehouse workers could result in an accident, leaving the employer liable for injuries or property damage.
• Vicarious criminal liability: Businesses can face vicarious liability for criminal acts committed by their employees if the acts occur within the scope of their employment. For example, a salesperson committing fraud while representing the company at a trade show may expose the employer to legal claims.

Many businesses and organizations can face vicarious liability claims depending on how they operate and manage their employees or representatives. Below are key groups at risk and how vicarious liabilities can affect them.

• Small business owners: Small businesses with employees handling day-to-day tasks are often vulnerable to vicarious liability claims. For example, the business owner could be responsible if a worker accidentally damages a customer’s property while delivering goods.
• Large corporations: Bigger organizations face heightened risks due to the size of their workforce and the complexity of their operations. With so many employees, the chances of negligence or misconduct increase significantly.
• Employers of independent contractors: Businesses that hire contractors for specific tasks may still face vicarious responsibility if those individuals harm others while working on their behalf. For instance, if a contractor improperly installs equipment at a client’s property, the hiring company could face claims for damages. This liability depends on how much control the business exercises over the contractor’s work.
• Health care providers: Hospitals and clinics often face vicarious liability negligence claims if medical staff, such as doctors or nurses, harm patients while performing their duties. Even when the employer is not directly involved, the facility can be held accountable for failing to supervise or hire competent professionals.
• Logistics and transportation companies: The employer could be liable for damages if a delivery driver causes an accident while on duty.

Below are the key types of insurance that protect businesses from vicarious liabilities:

General liability insurance covers claims for bodily injury, property damage and related liabilities caused by employees or representatives. For example, suppose a worker accidentally damages a customer’s property during service delivery. In that case, this policy can cover repair costs and legal fees. It’s a foundational policy for many businesses and is often the first line of defense for most liability-related incidents.

Professional liability insurance, also known as errors and omissions (E&O) insurance, protects businesses from claims of negligence, mistakes or failure to deliver promised services, which can result in vicarious liability. It is especially relevant for industries like consulting, IT services and health care, where professional advice or actions have significant impacts.

Employment practices liability insurance (EPLI) specifically addresses workplace-related claims, such as harassment, discrimination or wrongful termination, that can create vicarious liability for employers. For instance, the employer could face legal consequences if a manager engages in discriminatory practices against an employee. EPLI helps cover legal defense costs and settlements in these situations.

Umbrella insurance provides additional liability coverage beyond standard policies' limits, offering extra protection for high-value vicarious liability insurance claims. For instance, if a claim exceeds the limits of a general liability policy, umbrella insurance can cover the remaining costs. This coverage benefits businesses at higher risk of costly claims, such as those in transportation or construction.

While primarily focused on workplace injuries, workers’ compensation insurance may indirectly address certain vicarious liabilities related to employee negligence. If an employee’s unsafe actions injure a coworker, this policy can cover medical expenses and lost wages. This protection helps employees recover and protects the employer from direct legal claims in many jurisdictions.

Directors and officers (D&O) insurance covers claims against business leaders, protecting the company if actions taken by executives result in vicarious liability. For instance, if a board member’s decision leads to employee misconduct that harms clients, this policy can cover related legal costs.