It should be no surprise to you that you can be sued due to your own actions. But did you know that you or your small business can also be held financially and legally responsible for the actions taken by someone else? This is what’s known as vicarious liability or imputed liability.
So, if you want to protect yourself from the possible risk created by others, it’s important that you understand the definition of vicarious liability and how it could apply to your small business.
Interested in finding out more? This guide will cover everything you need to know.
Before we can dive into the details of insurance and liability, it’s important to understand the meaning of “vicarious”. Merriam-Webster Dictionary gives it two primary definitions:
- Experienced or realized through imaginative or sympathetic participation in the experience of another
- Serving instead of someone or something else
So, a parent who lives vicariously through their kids tends to view their children’s conduct and activities as a reflection of their own self worth. They might not let their son quit cub scouts because they always regretted quitting themselves, or they may encourage their daughter to join the cheer squad since they were captain of the team in high school.
This brings us back to insurance and liability. Just like how ‘living vicariously’ involves taking joy in someone else’s actions, vicarious liability means that you can be held legally responsible for someone else’s conduct and misdeeds. In vicarious liability cases, the liability stems from the relationship and power dynamics between the two parties (instead of whose fault it actually was).
But what does that mean, exactly?
Vicarious liability meaning
The original vicarious liability meaning comes from its legal Latin term, “respondeat superior,” which is translated as “let the master answer.”1
Under English common law, this legal doctrine states that an employer can be held responsible for the actions of the employee, especially if the actions are performed while they’re working on your behalf. The reasoning behind this goes as follows:
- In an employee-employer relationship, employers have clear power over their employee’ actions
- They pay the employee to follow their instructions
- Thus, the employer has all the control in the relationship
A vicarious liability case could arise when an employee at your cafe unintentionally spills hot coffee on a customer. Should this accident lead to bodily injury, your restaurant could be held liable. Even if you told your employee to be careful, your business may be liable for damages (by law) because the employee was doing the work you had paid them to do. This is exactly what could happen in a vicarious liability example.
If they didn’t work for you, they wouldn’t have any reason to be pouring coffee. But, since you exert control over them while they’re on the job, you can be considered vicariously liable, particularly if you don’t take actions to prevent those mistakes by exercising “duty of care.”
It’s worth noting that you can be held liable for damage, even if they are acting against directions you gave them.
Because the issue isn’t always black and white, for vicarious liability to be determined, the relationship between the employer and employee is important. To establish it, you must ask four key questions:
- Did the action occur when the employee was on the clock?
- Was the action part of the employee’s job duties?
- Was the action related to the employee’ responsibilities?
- Was the employee acting in order to benefit the employer?
So, let’s apply this to the case of the server in the restaurant:
- The accident took place during their shift
- Serving coffee was a regular duty
- Serving customers is one of their responsibilities
- The employee was serving patrons on behalf of your business
Using this model, we can clearly establish that the employee-employer relationship did, in fact, exist. So, you’re vicariously liable for their actions.
When can your business be vicariously liable?
As a small business owner, there are three primary circumstances that you could be considered vicariously liable for. These are actions taken by:
- Your employees – As we’ve already established, liability can pass from an employee to your small business if they’re on the job and acting within the scope of their duties .
- Independent contractors (sometimes) – In most cases, you’re not exposed to vicarious liability when you hire a independent contractor; however, there are instances where you can be found vicariously liable such as hiring a contractor who’s unfit for the work (or hiring someone to do a job that’s legally your duty).
- Agents you work with – Agents can be broadly applied to anyone (the agent) who works on your (the principal) behalf. This is what’s known as an agent-principal relationship, and in most cases, liability is split between the two parties.
How can you protect your business from vicarious liability?
Vicarious liability is a significant risk your small business faces daily. By purchasing a general liability insurance or professional liability insurance policy, you can protect yourself from the damages and costs of both direct and vicarious liability.
General liability insurance shields you from the costs of bodily injury and third-party damage caused by your employees or your business. Professional liability insurance helps protect you from claims of negligence, bad advice, or oversights that resulted in a client’s financial loss. But how can you protect your business in vicarious liability cases quickly and affordably?
Meet Thimble—the simpler, easier, and more affordable way to get covered.
Thimble offers on-demand general liability and professional liability policies by the hour, day, or month. It’s insurance on-the-hour for businesses on-the-go. So, if you want protection from both direct and vicarious liability, you can get covered in just 60 seconds.
Want to get started? Download the Thimble app or click “Get a quote,” input a few details about your business, and you’ll have a quote instantly. Sometimes, it’s not just about protecting you. You have to ensure that you’re protected from the actions of people representing you to be a smart business person.
Our editorial content is intended for informational purposes only and is not written by a licensed insurance agent. Terms and conditions for rate and coverage may vary by class of business and state.