Vicarious liability and professional indemnity: who pays when your people get it wrong?
Reviewed by Matthew Bartlett, Director, Apex Insurance Brokers Limited · Last reviewed 2026-08-05
You can hire the most careful staff in the country and still be sued for something one of them does. That is the practical reality of vicarious liability. Under English law, when an employee makes a professional error in the course of their duties, the injured client usually pursues the employer, not the individual, because the employer is the party with the assets and the insurance. This page explains how that doctrine connects to your PI cover, where the gaps tend to sit, and what to check on your policy.
What vicarious liability actually means
Vicarious liability is a long-standing principle of common law, not a single statute. It holds one party legally responsible for the wrongful act of another where there is a qualifying relationship between them and a sufficiently close connection between the wrongful act and that relationship. The classic example is employer and employee: if a member of staff acts negligently while doing the job they were employed to do, the firm can be held liable to the third party who suffers loss.
Two questions decide it. First, is there a relationship capable of giving rise to vicarious liability — typically employment, or something closely resembling it? Second, is the wrongdoing closely connected to what the person was engaged to do, rather than a personal frolic of their own? Where both are satisfied, the firm carries the liability even though it did nothing wrong itself.
Employees, agents and contractors: who counts
The relationship test is where many business owners are caught out. It reaches beyond people on a standard employment contract.
- Employees are the core case. Negligent advice, a missed deadline, a botched drawing or a mishandled client file done in the course of employment can all attach to the firm.
- Workers and quasi-employees in relationships "akin to employment" — where the firm controls and integrates the person into its business — can also trigger vicarious liability, even without a formal employment contract.
- Genuine independent contractors are usually responsible for their own negligence, so vicarious liability is less likely. But if you present them to clients as part of your team, or exercise close control, the line blurs.
- Agents acting on your behalf can bind the firm and expose it to liability for their acts within the scope of their authority.
The lesson is that job titles and payroll status do not settle the question on their own. Courts look at the substance of the relationship. If in doubt, assume the exposure exists and make sure the insurance answers it.
Where professional indemnity insurance fits in
Vicarious liability tells you who is liable. Professional indemnity insurance decides who pays. A well-drafted PI policy is designed to respond to civil claims for damages and claimants' costs arising from a breach of professional duty — including negligence, errors and omissions — committed in connection with the firm's business. Crucially, most PI wordings define the insured to include not just the firm but its employees and, depending on the wording, its partners, principals and certain agents acting on the firm's behalf.
That matters because the claim you receive will almost always name the business. Without PI cover, the firm funds the legal defence and any settlement from its own reserves. With it, the insurer typically takes on the defence costs and the damages up to your limit of indemnity, subject to the excess and the policy terms.
One member of staff, one error, and the bill lands on the firm. Make sure your PI limit and wording are built for it.
Get a PI quote →Two different things people confuse
| Vicarious liability | Professional indemnity insurance |
|---|---|
| A rule of law that assigns responsibility for another person's wrongdoing. | A contract of insurance that funds defence costs and damages when a claim is made. |
| You cannot switch it off; it applies automatically where the tests are met. | You choose the limit, the excess and the scope of cover. |
| Makes the firm the target of the claim. | Turns that claim into a manageable, insured cost. |
Put simply, vicarious liability creates the exposure and PI insurance answers it. Relying on staff carefulness alone leaves the firm carrying an open-ended legal risk it cannot control.
Getting your cover to match the risk
A few practical checks make the difference between a policy that responds cleanly and one that leaves a gap.
- Check the definition of "insured". Confirm it captures employees, former employees for past work, and any agents or self-employed consultants who act in the firm's name.
- Match the limit to your worst realistic claim, not your average one. Illustrative options such as £1m, £2m or £5m are common, but the right figure depends on your contracts, your clients and any minimum set by a professional or regulatory body.
- Mind the claims-made basis. Most PI policies respond to claims first made during the policy period. Continuous cover and, on exit, run-off cover keep historic work protected.
- Read the exclusions. Dishonest or fraudulent acts by an individual are often treated differently from ordinary negligence, though many wordings preserve cover for the innocent firm.
If your professional body sets a minimum PI requirement, treat that as a floor and not a target. Regulators including the SRA, RICS and ICAEW impose their own PI rules on the firms they oversee, and those minimums rarely reflect the true value of a serious claim.
Not sure your current wording picks up everyone acting on your behalf? Start a PI quote with Apex and we will review the definition of the insured with you.
Common questions
Can an employee be personally sued as well as the firm?
In principle yes, an individual can be liable for their own negligence, but claimants usually pursue the employer because the firm is more likely to hold assets and insurance. Vicarious liability lets them do so without proving the firm was itself at fault.
Does PI insurance cover the acts of self-employed contractors?
It depends on the wording. Some policies extend to agents and consultants working in the firm's name; others do not. If you use subcontractors on client work, ask your broker to confirm how the policy treats them before a claim arises.
We are a limited company, so aren't the directors protected anyway?
Limited liability protects shareholders' personal assets, but it does not stop the company itself being sued and having to pay. PI insurance protects the company's own funds, which is exactly where a vicarious liability claim lands.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority (FRN 724952). This guide is general information, not advice on a specific policy or a substitute for your policy wording.