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Vicarious liability

When you have vicarious liability for something, it means you could be held legally responsible for any resulting harm even though you didn't directly cause it. For example, a tech company could be held accountable for the actions of an employee.

What is vicarious liability?

Vicarious liability assigns your company responsibility for your employees' professional conduct and workplace safety.

If an employee, independent contractor, or business agent acts in a negligent manner or causes an injury by acting recklessly in the workplace, that person’s employer must answer for their actions in court.

When does your business have vicarious liability?

In any business liability lawsuit, the claimant can hold a business responsible for the actions of its workers. These lawsuits include errors and omissions claims over work mistakes, employment practices claims over harassment or wrongful termination, general liability claims over third-party injuries, and a whole host of other commercial liability claims.

Who is your business liable for?

As a business owner, you can be held liable for the actions of someone else acting on your behalf in a professional setting. That could include employees, independent contractors, and business agents.

Board members are sometimes excluded, though your business can carry directors and officers insurance to protect these individuals from legal risks like employment practices lawsuits.

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If an employee is acting within the scope of their job, they can pass liability onto you or your business. Even if their actions were unauthorized, you can still be held responsible.

Generally, the only way you won't be liable for an employee's actions is if they’re clearly acting outside their scope of duties. Such action is whimsically and legally called a “frolic.”

Say, for example, that one of your employees always leaves a mess of extension cords running through the middle of their office. A client visits your office for a meeting, trips on the tangle of extension cords, and winds up at the hospital. If the client sues for personal injury, they would name your business, not your employee, as the defendant.

Although your employee is directly at fault for not providing a safe environment, the employee is acting on behalf of your company. Legally, it’s your business’s responsibility to make sure employees follow safety rules.

Independent contractors

In some situations, you can be vicariously liable for the work of contractors you hire. These include:

  • when you’re negligent in the hiring process, such as when the contractor is clearly not qualified
  • when you hire a contractor to do a task that you’re legally required to do yourself, such as sign a document in your name
  • when you hire a contractor to do work that is inherently dangerous to third parties, such as transportation of explosives

The line between contractor and employee is sometimes blurry. If the court feels that the contractor acts more like an employee, your business could have more vicarious liability for their actions.

If you supervise a contractor, control their schedule, and make them work according to your methods, then a plaintiff in a liability case will likely argue that they're acting as your employee.

Business 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 your business.

How can you protect your business from vicarious liability?

To help protect your tech business against the risk of vicarious liability, make sure it carries the appropriate business insurance. These insurance policies can protect you and your business if you’re sued for vicarious liability:

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Errors and omissions insurance

Errors and omissions insurance covers legal expenses if an employee or contractor makes a mistake that triggers a professional liability lawsuit against your business. This policy is sometimes called professional liability insurance.

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Cyber liability insurance

Cyber liability insurance, which is often included in errors and omissions insurance for tech businesses, covers recovery costs and legal expenses if an employee or contractor fails to prevent a cyberattack against a client.

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Workers' compensation insurance

Workers’ compensation insurance covers medical bills and legal expenses if an employee or contractor causes an accident that results in personal injury for another employee.

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Fidelity bonds

Fidelity bonds compensate clients if one of your employees steals money or property from the client.

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Employment practices liability insurance

Employment practices liability insurance covers legal expenses if an employee or former employee accuses someone at your business of discrimination, harassment, or wrongful termination.

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General liability insurance

General liability insurance covers medical costs, property damage, and legal expenses if an employee or contractor breaks a client’s equipment or causes personal injury while the client is at your office.

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Commercial auto insurance

Commercial auto insurance covers the cost of property damage, medical bills, and lawsuits if an employee has an accident in a company car.

Minimize your vicarious liability by asking others to purchase insurance

If you use independent contractors or subcontractors, you can minimize your vicarious liability by asking that they carry their own insurance coverage.

Even in situations where you aren’t vicariously liable for their actions, you might be sued by a client or a contractor. Also, if your contractor names you as an additional insured on their policy, you’ll be covered if a client files a multi-party suit against you both.

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