Vicarious liability insurance is a type of liability insurance that covers the insured’s employees in the event their actions result in injury or property damage to others. This type of insurance is often required by law as a condition of employment, or employers may specifically request it to reduce the cost of defending against suits filed by injured third parties.
What is Vicarious liability insurance?
Vicarious liability insurance is a form of “insurance” used by employers and workers to protect themselves and their businesses from liability suits filed by other parties.
In essence, it is a form of self-insurance. When the insured employee is sued by a third party the insurance company pays out on behalf of the employer-policy holder. An example would be if an employee injured another person on the job, and was found to have been at fault in doing so.
What is the meaning of vicariously liable?
Vicarious liability arises when an employer is liable for the wrongful act that was committe by his/her employee. For example, if an employee of a company steals from another person or harms them in some other way, the employer can be held vicariously liable for that employee’s actions.
What is worker’s compensation?
Worker’s compensation is a system design to provide social insurance to those who are injure in the course of their employment. Employers are require to carry worker’s compensation insurance and may be penalize in their state if they do not. Worker’s compensation is design to protect employees from work-relate accidents and illnesses; however, employers can deny a claim if an injury is determine not to have been work relate.
Areas of coverage
Vicarious liability insurance generally provides two types of coverage: the first is for defense costs by the insurer in handling third-party lawsuits against the employer. The second is indemnification to cover judgment losses against the employer. Some policies are write with higher limits for the latter so that the employer can self-insure up to a certain level.
What is a third-party suit?
A third-party suit is one that is file by a party other than the employer or employee against an insure. Usually when an employee causes injury or damage to another individual. For example, if an employee of ABC company steals money from a customer, he or she is likely to face a third-party suit.
What are some examples of third-party suits?
In some situations, a third-party suit can be file. Against an insure by another party who is hurt or injure. As a result of an act of the insure employee. There are also claims where the plaintiff is not injure at all. But is seeking money damages to compensate for emotional distress.
What is self-insurance?
Self insurance refers to the act by an employer or worker, who chooses to protect themselves and their business, with insurance in place. By doing so, the employer is not at the mercy of insurance companies that may seek to deny or low-ball claims.
What are some reasons people purchase worker’s compensation insurance?
Worker’s compensation insurance is generally purchase by an employer for the purpose of protecting the business from third party lawsuits and fines. In addition, it also helps protect employees from being fire if they get hurt on the job. In most states, there are different compensation caps based on age, experience, and severity of the injury.
Benefits of this type of insurance
- Protection of employees.
- Protection of business.
- Assistance in paying medical expenses and lost wages, if any.
- Allows the employer to recover legal fees related to a lawsuit filed against the employer by an injured customer, employee, or former employee.
- Prevents the loss of clients if a product causes injury or damages to a customer.
- Prevents people from suing an employer for any other reason, like being fire for wrongful dismissal.
- Vicarious liability insurance helps to protect the owner of the business, such as if a loan is not pay back by an employer or employee who is sue for negligence.
- Allows the insurer to pay out some or all of a claim.
- Prevents employers from having to pay for their employees’ injuries and damage, which may force them into bankruptcy.
- Prevents injured employees from having to pay for their injuries out of pocket.
- Helps prevent employers from getting sue for negative actions against an employee, such as a bad reference or defamation.
- Allows the employer to take on risks that they may never face directly or indirectly and share liability with their insurer. This is especially important for new businesses that do not have much experience in managing insurance claims and are seeking to protect themselves from the risk involved in the daily operations of running a business.
- Allows the insurer to help the employer manage risks by reducing their exposure to the risk of being sue.
- They allow the insurer to help the employer manage risk by sharing their expertise, which will reduce both their exposure and that of the company.
- Allows the insurer to protect an employer from liability for any type of lawsuit. Or a claim made against them by another individual.
Categories of workers covered
Worker’s compensation insurance is generally require by law for businesses. That employ at least one person within their organization, including corporations and partnerships. In certain workplaces, individual states may require coverage for specific jobs. Or workers that are not otherwise cover by state law.
Disadvantages
- High cost.
- Limited coverage.
- Not a great solution for businesses that do not employ anyone. But only lease or rent space to the companies that do business at the location.
- Workers’ compensation insurance may not offer coverage for all employees.
- Insurance is not mandatory in some states and employers. Those who are cover by worker’s compensation insurance. Can choose to opt-out of it in case they want to pursue a cheaper option.
- The policy has a deductible that must be pay out of pocket by the employer. Then, later on, reimbursed by the insurer.
- Injured employees cannot sue their employers directly, but they can still sue other parties and their insurers in many cases.
- The policies can be expensive and can be subject to medical inflation.
Conclusion
Vicarious liability insurance is a type of insurance that is primarily design to protect employers and business owners. The liability form of worker’s compensation provides protection to employers and employees. Who may not be protect in other cases. It covers the employer if they are sue by an employee, who may have been injure on the job. This type of insurance protects businesses from being sue, which in turn protects them from bankruptcy and financial ruin.