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 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:
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.