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What Is Vicarious Liability & How Does It Affect IT Businesses?

What Is Vicarious Liability & How Does It Affect IT Businesses?

Friday, March 18, 2016/Categories: business-liability-insurance

Ever wanted to “live vicariously” through someone else? Maybe you’ve imagined taking the same lavish trip as a family member by flipping through their photos. Or perhaps you’ve been obsessed with the stories of a friend who’s making it big in Hollywood.

Vicarious liability is a similar concept. Except instead of taking enjoyment from a person’s actions, you legally take on their liability (which is definitely not as fun).

To put it another way, vicarious liability means you and your business can be held liable for something you didn’t actually do – specifically, for the actions or mistakes of your employees, contractors, or agents.

Why You Can Be Liable for Someone Else’s Actions

Imagine a scenario in which you run a cabling installation service. One of your employees accidentally leaves loose wires running across a hallway, and a person comes walking along without noticing them, trips, and requires a visit to the hospital. That person decides to sue.

Although your employee is directly at fault for not providing a safe environment, they’re acting on behalf of your company, and it’s legally your company’s responsibility to make sure its employees follow safety rules.

Essentially, as a business owner, you can be liable for the actions of those who are acting on your behalf. This could include…

  • Employees. If an employee is acting within the scope of their job, they can pass liability onto you or your business. They may even do something in an unauthorized way and still pass on liability. Generally, the only way an employee doesn’t pass on liability to you is if they’re clearly acting outside their scope of duties, an action that’s whimsically and legally called a “frolic.”
  • Independent Contractors. In some situations, you can be vicariously liable for the work of the contractors you hire. These include instances when you’re negligent in the hiring process (e.g., the contractor is clearly not qualified), when you hire a contractor to do a task that you’re legally required to do yourself (e.g., sign a document in your name), or when you hire a contractor to do work that is inherently dangerous to third parties (e.g., transport explosives).
  • Agents. An “agent” is anyone who works on behalf of you or your business and has the authority to alter or create legal relationships between you and third parties. They can be either employees or independent contractors, but typically, they assume some liability in a case, along with you.

For tech businesses that hire contractors or subcontractors, this is an important concept to keep in mind. If they’re acting as agents on your behalf, make sure they’re qualified. Also remember that who’s considered a contractor and who’s considered an employee is a matter that’s decided by the government more than anyone else. If you supervise a contractor, control their schedule, and make them work according to your methods, then it’s likely the plaintiff in a liability case will argue that the contractor is considered your employee and you’re liable for their actions.

Have Contractors Carry Insurance and Carry Your Own, Too

To help protect your business against the risk of vicarious liability, it’s a good idea to surround yourself with technology liability insurance.

Consider carrying…

These insurance policies can provide financial help even when a claim is caused by someone else that you’re vicariously liable for.

Lastly, when using outside contractors or subcontractors, require that they carry their own insurance coverage. In many instances you won’t be liable for their actions, but you could be sued anyway (and a contractor without coverage may try to argue that you’re liable). If you’re named as an additional insured on their insurance coverage, you may receive aid from their policies when you’re both sued.

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