What is Vicarious Liability?

robfreeman.com - Vicarious liability is a fundamental concept in risk transfer. The word vicarious means taking the place of another… For instance, a friend of mine has a Tesla Model S - but I don’t - so I have to live vicariously through him when he tells me how awesome and fast it is. Vicarious liability, however, is created when one party is held responsible for the actions of another party. This can happen as the result of a relationship, like a parent/child, or an employment position or through a contract. In another video (robfreeman.com/what-contractu...) I describe contractual liability insurance and indemnification which is directly related to vicarious liability. Vicarious liability can only arise when one party is supposed to be responsible for exerting control over the other party… For example, if a general contractor hires a sub-contractor to install solar panels on a roof, and the sub-contractor drops a panel and injures someone on the ground, the general contractor may be held vicariously liable for the bodily injury and property damage caused by the sub-contractor. This liability is usually addressed through a hold harmless, or indemnification agreement. However, if the sub-contractor's insurance is worthless, or if there's an exclusion in the policy for the situation, the general contractor may find himself or herself up a creek without a paddle. Vicarious liability is part of risk transfer... but risk transfer is only one part of the total cost of risk that any company bears.