Vicarious liability occurs when you or your business is legally liable for the financial actions of another entity. Most of the time, this is the legal framework at the helm when you are accused of committing a mistake by your employees, contractors, or agents.
What is vicarious liability?
In the same way that living vicariously through another person’s actions involves having fun with another’s actions, vicarious liability implies that you could legally be accountable for someone else’s illegal act. This is possible due to the way certain legal relationships function.
Let’s take an example: an employee cleans up a spill in the cafe but doesn’t place out a “wet flooring” sign. A patron walks into the restaurant and slips onto the wet area. Your company may be sued for damages if the fall causes an injury. Although your employee’s actions led to the accident (and no matter if you reprimanded your employee to display the notice), the company and your company could be held accountable according to the law.
What is the time when your company is at risk?
If you are a business owner, you may be held responsible for the actions of
Your employees. For liability to transfer between an employee and your company or you, an employee must be performing their duties within the confines of their work or professional obligations. If an employee is acting in violation of the directions you provide them, you may be held responsible for the harm their actions (or absence of movement) result in.
Agents you deal with. “Agent” refers to a term that includes all those who work on behalf of another (the principal). Agents may be employees or independent contractors, and they can alter or modify legal agreements among the principal and other third parties. In most vicarious liability cases involving the principal and agent, both the agent and the principal share some responsibility, and the person injured by the misconduct could seek damages from both parties.
Independent contractors. Business owners decide to work using independent contractors to prevent the risk of being liable for vicarious damages. The general rule is that the principal (you) aren’t responsible for the work of independent contractors; however, there are some instances where vicarious responsibility may be passed along the chain. These are instances when you’re negligent (e.g. you employ a contractor who cannot perform the task they’re required to complete) and when you hire contractors to perform tasks that, as per the law, you have to accomplish yourself. Likewise, when you employ a contractor to perform work that is risky to others.
Vicarious liability is protected by business insurance.
Vicarious liability insurance – what is it?
Vicarious liability is a regular possibility for owners of businesses. However, this doesn’t mean your bottom line must be impacted by the errors or mistakes that others commit. There are various types of insurance for businesses that specifically shield companies from the burden of both vicarious and direct liability.
They usually provide for the cost of defending yourself from claims of vicarious liability:
General liability insurance shields you from the expense of lawsuits arising from personal injuries or property damage caused to third parties by employees or by you or incidents on your property.
Errors and Omissions insurance, also known as the insurance for professional liability, protects you from the cost of oversights and mistakes you or your team make during your work (or from the expense of lawsuits for perceived errors).
If you or your employees are injured at work, workers’ compensation insurance will cover medical bills and lost wages.
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