Vicarious Liability

Study guide: Exam 6C

Vicarious Liability is liability imposed on one party for the negligence of another because of the relationship between them — an employer for its employee, and in Canadian auto law a vehicle owner for the driver they permitted to use the vehicle. The party held liable need not have been careless at all.

• Statutory vicarious liability in auto is the version that matters on 6C: provincial Highway Traffic Act provisions make the owner of a motor vehicle liable for loss caused by its negligent operation by anyone in possession with the owner's consent. This is why auto insurance follows the vehicle and why an owner's policy responds when a friend borrows the car.
• Employer liability attaches where the employee's tort was committed in the course of employment; the modern Canadian test asks whether the employment materially increased the risk of the wrong occurring, which has extended vicarious liability well beyond simple negligence.
• Rationale: the party with control over the activity and the deeper pocket should bear its cost, and doing so creates an incentive to select and supervise carefully. The injured party's ability to recover is the practical driver.
• Underwriting consequence: the risk being insured is the vehicle and everyone permitted to drive it, not only the named insured. A household with an unlisted young driver is a real exposure whether or not that driver is rated, which is why misrepresentation about drivers is treated so seriously.
• Some provinces cap an owner's vicarious liability for a permitted driver's negligence, so the driver's own policy responds above the cap — a coverage-layering detail that changes which insurer pays.
• For commercial insureds, vicarious liability drives the exposure base: an employer's general liability exposure grows with payroll and headcount because each employee is a source of imputed liability.

Which Policy Responds? A car owned by A is lent to B, who lends it to C without A's knowledge. C causes a collision injuring D, who suffers \$800{,}000 of damages. A carries \$1 million liability; C carries \$500{,}000 on their own vehicle.

Who is liable, and which policies respond?

Answer

• C is personally liable as the negligent driver, and C's own policy responds — many auto policies extend coverage to the insured while driving a non-owned vehicle, typically as excess coverage.
• A is vicariously liable if C was in possession with A's consent. The usual outcome: consent given to B extends to a sub-bailee unless A expressly prohibited it. If A simply said "take the car," courts have generally found consent flows through, so A is liable.
• A's policy responds first, because auto coverage follows the vehicle and A's policy insures permitted drivers. It pays up to \$1 million, covering the full \$800{,}000.
• C's policy is excess and here contributes nothing, though it would have if damages exceeded \$1 million.

The counter-case is worth stating: if A had expressly forbidden lending the car on, C's possession is without consent, A's vicarious liability fails, and A's policy may not respond at all — leaving D with C's \$500{,}000 and a \$300{,}000 shortfall recoverable only from C personally, or from D's own underinsured motorist coverage.

The general lesson: vicarious liability is what makes the owner's policy the primary source of recovery in Canadian auto, and consent is the fact on which it turns.