What is vicarious liability?

Vicarious liability implies that you can be held responsible for another person’s mistakes.

Amy Beardsley
By Amy Beardsley
Published Nov 1, 2022
5 min read
Link copied!
Busy multiethnic partners working together in a meeting room in front of a laptop.

As a small business owner, you can be held responsible for mistakes made by your employees, contractors and agents acting on behalf of you or your company — if they are working within the scope of your normal operations.

If that happens, some types of business insurance include vicarious liability coverage that can help with related expenses.

What is vicarious liability insurance?

Vicarious liability is a legal term that implies that you can be held financially responsible for another person’s mistakes.

“Vicarious liability insurance” refers to different types of insurance — such as general liability or professional liability — that can protect small business owners from vicarious liability losses.

Vicarious liability may be covered in a liability insurance policy if you are found liable for the actions, mistakes, negligence or omissions of another person working for you business, such as:

  • Employees
  • Partners
  • Volunteers

Types of business insurance that offer vicarious liability coverage

Business insurance providers don’t typically sell coverage known by name as “vicarious liability insurance.”

Business insurance packages often include different “policies” (a.k.a types of coverage) that protect against different risks. Depending on your operations, these types of business insurance can potentially safeguard you from vicarious liabilities:

  • General liability insurance — An employee working on behalf of you company accidentally hurts someone.
  • Professional liability insurance — An employee makes a mistake that causes a financial loss for a customer or client.
  • Commercial auto insurance — An employee driving a company vehicle causes an accident that results in an injury or property damage.

Examples where insurance may cover vicarious liability

Vicarious liability risks are common for many different types of small businesses.

This is because employees, partners and volunteers often engage in a wide range of potentially risky activities. Here are a few examples to consider:

  • If an employee at your food service business leaves a refrigerator open, food could spoil and make customers ill. You could be sued for vicarious liability.
  • If a part-time worker for your construction business is careless with tools and damages a client’s property, you could be asked to cover damages.
  • An employee at your cleaning business accidentally spills harmful chemicals on a granite countertop, damaging the surface beyond repair. You could be held vicariously liable for the damages.

Other scenarios involving vicarious liability include harassment, discrimination, personal injuries, slander or libel and copyright infringement.

When is a business vicariously liable?

Vicarious liability insurance can help to protect businesses from a variety of claims. That’s why it’s crucial to understand potential vicarious liability risks at your business.

Mistakes can happen anytime, and your risk can increase as you work with more people. For example:

Employees: If an employee is performing tasks within the scope of their professional duties, you could be held liable for the damage their actions cause — even if they act against your directions.

Partners: The partnership could be vicariously liable for injury or damages caused by a partner.

Directors and officers: Directors and officers act on behalf of the corporation. Therefore, the corporation can be held responsible for the directors’ and officers’ wrongdoings.

Are vicarious liability claims preventable?

There is no way to prevent every possibility of a claim being filed. However, you can decrease the likelihood of an incident by providing a safe workplace and training employees.

Consider taking steps to:

  • Ensure compliance with safety regulations.
  • Provide an employee handbook that covers all aspects of the job.
  • Develop a harassment and discrimination training program for employees.
  • Document all issues that arise.
  • Check all employees’ references and background screenings thoroughly.

How to protect your business from vicarious liability lawsuits

Business insurance can help protect you from paying entirely out of pocket if your business is named in a vicarious liability lawsuit.

Your coverage will vary depending on your operations and exposure to risks.

For example, if you operate a retail store or restaurant, you might be concerned about sexual harassment claims brought against you by employees or customers. But if you own a manufacturing plant, you may be worried about product liability claims.

Many businesses utilize these types of business insurance for vicarious liability protection:

General Liability coverage

General liability can provide protection for lawsuits involving damage to property that doesn’t belong to your business and injuries to people who are not your employees.

Professional Liability coverage

Professional liability insurance can protect you and your business if someone makes a mistake while providing professional services on behalf of your business.

Employment Practices Liability Insurance (EPLI)

EPLI can help cover costs if your business is sued by a customer or an employee for sexual harassment, discrimination or wrongful termination. NEXT customers can purchase this coverage as an add-on to their general liability insurance

Liquor liability coverage

Liquor liability insurance can help protect businesses that sell and serve alcohol. It’s designed to help cover losses resulting from intoxicated guests who cause an injury or property damage after they are served alcohol.

How NEXT helps small businesses

NEXT is a one-stop shop for small business insurance.

We offer a streamlined and simple way to find the coverage you need online. It usually takes less than 10 minutes to get a quote, review your options and purchase the insurance package that is right for you.

Our licensed, U.S.-based agents are standing by to support you if you need help.

Amy Beardsley
About the author

Amy Beardsley, insurance expert and contributing writer at NEXT Insurance, is a content marketing writer who specializes in small business coverage. Leveraging her background in the legal field, Amy brings a deep understanding of laws, regulations, and compliance requirements to her work. As a content marketing writer since 2016, she has contributed to publications like Legal & General, Berkshire Hathaway Specialty Insurance, Insurify, and NerdWallet. Her work has also appeared in CNBC, Kiplinger, and US News. When she’s not writing, Amy enjoys playing cards with her family and experimenting with new recipes.

There’s a lot to love about NEXT

Business insurance in less than 10 minutes

Get insurance in less than 10 minutes and you can save up to 25% in discounts*

Tailored business insurance

Unique, flexible coverage with easy monthly payments

Get business insurance online

Do it all 100% online or talk to a licensed U.S.-based advisor

Let’s find the coverage you need for your business
Business insurance is divided into different policies. We offer seven types so it's easy to design the coverage that fits your business.
General Liability insurance
General Liability
Protect yourself from accidents that cause physical injury or damaged property.
Professional Liability or Error and Omissions Insurance
Professional Liability/E&O
Shield yourself from lawsuits that claim your work errors caused financial losses.
Workers' Compensation Insurance
Workers’ Compensation
Cover medical bills and lost wages if your employees have an accident at work.
Commercial Auto Insurance
Commercial Auto
Stay on the road with coverage for dents, tows and damage to someone else’s vehicle.
Tools & Equipment Insurance
Tools & Equipment
Upgrade your general liability coverage to protect any gear that’s stolen, damaged or lost.
Commercial Property Insurance
Commercial Property
Keep your building, inventory and equipment protected from fire or water damage.
Business Owner’s Policy Insurance
Business Owner’s Policy
Combine general liability and commercial property into one policy to protect your business.
* To the extent permitted by law, applicants are individually underwritten, not all applicants may qualify. Individual rates and savings vary and are subject to change. Discounts and savings are available where state laws and regulations allow, and may vary by state. Certain discounts apply to specific coverages only.
What we cover
Chat with Us

Mon – Fri | 8 a.m. – 5 p.m. CT

© 2024 Next Insurance, Inc. 975 California Ave, Palo Alto, CA 94304, United States
Better Business Bureau
Issuance of coverage is subject to underwriting. Not available in all states. Please see the policy for full terms, conditions and exclusions. Coverage examples are for illustrative purposes only. Your policy documents govern, terms and exclusions apply. Coverage is dependent on actual facts and circumstances giving rise to a claim. Next Insurance, Inc. and/or its affiliates is an insurance agency licensed to sell certain insurance products and may receive compensation from insurance companies for such sales. Policy obligations are the sole responsibility of the issuing insurance company. Refer to Legal Notices section for additional information.

Any starting prices or premiums represented before an actual customer quote are not guaranteed and are representations of existing premiums of active policies as of December 6, 2023. To the extent permitted by law, applicants are individually underwritten, not all applicants may qualify. Individual rates and savings vary and are subject to change. Discounts and savings are available where state laws and regulations allow, and may vary by state. Certain discounts apply to specific coverages only.