Understand vicarious liability when contracting

In the law of torts, which is what we call negligence claims in general, the normal rule is that you are only responsible for your own negligent acts and not those of any subcontractor.

Some states still follow the law of joint and several liability, which expands this rule to make a negligent party responsible for the negligence of others under a variety of circumstances. For instance, in Illinois, if your fault exceeds 25 percent, you are jointly and severally responsible for all fault of any defendant.

Vicarious liability

Another way that some states increase risk exposure is through vicarious liability, when the work involves abnormally dangerous or inherently dangerous work.

Abnormally dangerous activities create absolute liability if an incident occurs. This type of liability exists when handling explosives or nuclear waste and perhaps a few other items. If an incident were to occur, there is no need to find someone at fault.

There is no need to show a defendant was negligent. You only need to show that an incident occurred and prove up your damages. The party or parties that were in any way responsible for the handling of the abnormally dangerous item have to pay the reasonable damages that result, regardless of fault.

Inherently dangerous activity can exist in the installation and management of gas lines. In this area of the law, some states hold the general contractor vicariously liable for the acts of any subcontractor that was tasked with doing inherently dangerous work, such as installation of gas lines. Courts have opined that this type of work can be done safely provided certain safety protocols are followed.

A standard practice is that prior to laying gas lines the area is marked for existing underground utilities. Any area where a utility preexists must be hand dug within 18 in. on either side of the marking. Areas where utilities are being crossed must be potholed and hand dug. Once lines are installed, they must be pressure tested and leak tested.

The rationale for holding a general contractor vicariously liable for inherently dangerous work done by its subcontractors lies in a public policy determination by the courts. Courts seek to avoid the practice of general contractors subcontracting inherently dangerous work to smaller companies with less financial wherewithal to avoid their own liability exposure.

History demonstrates that general contractors more often than not have much better financial status than many smaller subcontractors. The courts seek to protect third parties from negligent acts that cause an explosion when a gas line is ruptured by adding a deeper pocket (i.e., the general contractor).

In the industry

As a practical matter, many propane marketers do installation work for general contractors for new construction as well as remodels. It is common for the general contractor to require that you maintain a certain level of liability insurance and that it, the general contractor, be listed as an additional insured for third-party or liability claims.

There is rarely a reciprocal request that the propane marketer be listed as an additional insured on the general contractor’s commercial general liability insurance policy for third-party liability claims. This is something that you can certainly request. However, don’t be surprised if your request is denied by the general contractor.

The doctrine of vicarious liability would work to place the liability insurance of the general contractor as an excess insurance policy above the liability insurance that you obtain for your company. This is contingent upon a court determining that the work is inherently dangerous and that the state where the incident occurs will apply vicarious liability to the general contractor.

Some insurance policies may have language that creates a pro rata sharing of both the cost of defense and the cost of indemnity between the insurance of the general contractor and the subcontractor. Defense-related expenses in the event of a claim or lawsuit are typically unlimited.

In other words, the insurer that issues your policy of liability insurance pays all legal fees, expert fees and any court or litigation expense incurred in defending your company. Indemnity is the amount of liability insurance you purchase. That is a specific amount. And that is all the insurer will pay.

When an incident occurs where you are a subcontractor or general contractor and the work is inherently dangerous, keep this doctrine in mind.

John V. McCoy is with McCoy, Leavitt, Laskey LLC. His firm represents industry members nationally. He can be reached at jmccoy@MLLlaw.com or at 262-522-7007.