The chapters in this final section of the book address a number of discrete topics, applying our earlier analysis to uncover the role played by insurance in important aspects of the law of obligations. The chapters do not purport to provide exhaustive treatments, but aim to further the discussion embarked on in the previous chapters, and to contribute a new perspective to existing debates. Some of the topics covered in these chapters have been widely recognized as important, though the role of insurance has not been fully investigated;1 others have been relatively neglected in proportion to their significance.2 The present chapter falls into the first of these categories. It examines the relationship between insurance and vicarious liability, and explains what light may thus be shed on the legal principles in operation.
In this introduction, we set out four aspects of the argument to come. First, we suggest that when the contribution of insurance, and indeed of insurance law, is taken into account, it becomes plain that vicarious liability is, as most scholars have suggested, a form of secondary liability. It attaches to one party (most often an ‘employer’) in respect of the torts of another (most often an ‘employee’).3 We offer reasons for suggesting that this is more accurate than an alternative theory (sometimes called the ‘master’s tort’ theory), holding that vicarious liability is a form of ‘primary’ liability, where the tort itself is attributed to the vicariously liable party.4 Critically, the ‘primary liability’ theory is inclined to squeeze vicarious liability into a bipartite form, in order to protect theoretical models.5 We have challenged bipartite readings of private law in earlier chapters, calling attention to a larger, multi-party picture in which insurance plays a key role, and which offers a truer representation of the law of obligations in operation. Vicarious liability in its contemporary form is an important illustration of this larger picture.
At this stage, we should add a little more information about the reasons why we perceive vicarious liability to be secondary liability. The treatment of companies is of particular importance. A company, being a legal fiction, has no identity other than in law and is incapable of acting other than through human agency. One question which arises is whether the relevant conduct can be attributed to the company. This is not the same question as whether the company is vicariously liable. Attribution depends upon the nature of the conduct and the status of the corporate agent, and there is no fixed standard: all depends upon why the question is being asked.6 The key point is that if there is attribution, the liability imposed upon the company is primary and not secondary, so that the company is a tortfeasor in its own right. An employer who is vicariously liable is not a wrongdoer but nevertheless has to answer for the acts of others, whereas a company facing personal liability is regarded as a wrongdoer in its own right and is answerable for its own attributed misdeeds. This distinction may appear merely technical, but it has important implications for post-liability loss-spreading. There is no objection to a vicariously liable employer seeking recovery under a contract of insurance or in some other way, but there may be public policy reasons justifying refusal to allow a company which faces primary liability from seeking indemnification;7 some such liabilities may well be outside contractual cover. Finally, there is no doubt that this may affect the way in which tort claims are framed.
This brings us to a second aspect of our argument. While some writers have taken the view that in general it makes little difference whether vicarious liability is to be seen as primary or secondary,8 we show that the classification does matter, both in practice and as a matter of principle. In fact, we argue that it is when the distinction between primary (or personal) and secondary liability matters most, that the law responds by showing the generally accepted view of vicarious liability (as secondary liability) to be correct. For example, ‘attribution’ of acts to a company is a far narrower idea than the looser sense of ‘group unity’ which has often been thought relevant to acceptance of vicarious liability,9 and which may be seen reflected in the present development of vicarious liability beyond the bounds of employment relationships as they have hitherto been understood (and, indeed, beyond the bounds of employment relationships at all).10
The third, and most important aspect of our argument links the secondary nature of vicarious liability to the issues of risk allocation and loss-spreading which have been debated throughout earlier chapters, and thus expands on the reasons why it is significant. Plainly, the current principles of vicarious liability were developed before the rise of liability insurance charted in Chapters 3 and 9. In this chapter, we show that these principles were the product of nineteenth-century exercises in risk allocation between parties. They operated as restrictions on potential liability. These exercises however laid down a framework of risk-bearing which soon became the basis for loss-spreading:11 the impact of vicarious liability was transformed by the considerable changes occurring relatively soon after its core concepts were set out, as the idea of loss-spreading through liability insurance (particularly on the part of employers), workmen’s compensation, and national insurance all took hold. This phenomenon is demonstrated in 10.3.
Insurance, however, while a significant means of channelling and distributing risks, is of course not the sole means. A feature of the modern ‘enterprise’ is that it too ‘operates as a mechanism for absorbing, controlling and spreading social risks’; and the boundaries of the enterprise from this point of view are in part defined by notions including the definition of ‘employee’ or (more inclusively) ‘worker’.12 Employment, the enterprise, and vicarious liability, are all related, and their relationship is strongly associated with the potential for channelling (controlling and spreading) risks.
Finally, a fourth aspect of our argument is that we address the limits of the process of loss-spreading. In particular, we see that in many cases it is the operation of insurance law, together with the division between primary and secondary liability, which determines whether losses are susceptible to being spread. This function of insurance and insurance law, in setting the boundaries of loss-spreading, is premised on ideas of responsibility and fault, though not in the negligence sense. The risk of negligence is a highly distributable one. This important theme is further developed in the following chapter.
The argument of the chapter is structured as follows: 10.2 briefly outlines the key parameters of vicarious liability and some different views about its nature and rationale, and indicates the place of loss-spreading within this general picture. The following section, 10.3, considers the origins of vicarious liability in its modern form and illustrates that the principles we use today originally effected not an extension, but a restriction, of potential liabilities. We underline that this restriction initially included exercises in (originally contractual) risk allocation. This section also introduces the question of primary and secondary liability in this formative period; and illustrates the rising influence of loss-spreading.
In 10.4 and 10.5, we focus on contemporary issues, and the contribution of insurance law. Beyond the tort cases raising issues of vicarious liability is a further body of law determining whether the principal’s insurance policy will indeed respond to the liabilities imposed. This body of legal decisions underlines that for some vicariously liable parties, insurance is an available option only where the tort is not attributed to the insured party. But equally, insurance contracts may be designed to have the effect of preventing the spreading of certain losses, or of deflecting the burden of spreading losses to another party. Both of these phenomena return us to the idea that the consequences of everyday fault—even, in this instance, some fault which goes beyond negligence13—are the basic stuff both of risk allocation, and of loss distribution. However, we also see that legal notions of fault, strategic contracting activity, and the law’s response to contractual allocations may operate to limit the spreading of losses. These limits chiefly operate beyond the two-party model, but they affect relevant duties and liabilities, and should be brought within the analytical frame.
10.2 Nature and Boundaries
10.2.1 Essential features
Vicarious liability is a deeply entrenched feature of the law.14 In fact for the most part it is so familiar that it operates without note.15 In Various Claimants, Lord Phillips drew attention both to the extensive use of vicarious liability principles, and by implication to their generally uncontroversial application: ‘[a] glance at the table of cases in Clerk & Lindsell on Torts, 20th edn (2010), shows that in the majority of modern cases the defendant is not an individual but a corporate entity’.16 Courts resolving these cases generally have no need to bring into play theories of ‘attribution’, but the result is straightforward secondary liability in the sense described in 10.1.
The effect of vicarious liability is therefore to attach liability to one party for the torts of another. This is captured in the terminology of respondeat superior: the vicariously liable ‘superior’ answers for the torts of a servant or agent. As we have seen, some scholars argue instead that the tort is treated as that of the superior, though the act is that of the servant or agent, because the law attributes the act to the principal, or treats the principal and agent together as one actor (taking quite literally another dictum, qui facit per alium facit per se—who acts through another acts for himself).17 We have amplified our preference for the first approach, and its significance for our argument, in 10.1.
In its core instance, vicarious liability has traditionally attached to an employer (‘master’) for the torts of an employee (‘servant’), provided these are committed in ‘the course of employment’.18 That core instance is however ‘on the move’.19 The category of employees, or of people who are to be treated as employees, has been subject to extension,20 and considerable stretching,21 and it has now been recognized that the idea of ‘employment’ for the purposes of vicarious liability is ‘fluid’22 and will reflect the purposes of vicarious liability itself; indeed, liability for non-employees is now recognized to be possible where the necessary ‘incidents of employment’ are present, so that it is ‘fair and just’ to treat the relationship as sufficient to give rise to vicarious liability.23 Despite these developments, the key distinction with which the law continues to work is between vicarious liability for the torts of an ‘employee’, and no vicarious liability for the torts of an ‘independent contractor’, and this distinction provides the backdrop to the law’s current development.
The latter distinction was set down before the middle of the nineteenth century,24 and has been a key element in the subsequent operation of the law.25 An unsatisfactory feature of this division is that the label ‘independent contractor’ has, prior to the most recent developments, been used to refer to anyone with whom one contracts for work, who is not an employee. This problematic dichotomy was by no means entirely a creation of the law of tort, although it was adopted in nineteenth-century tort cases in the formative period both of vicarious liability, and of the employment contract.26 The distinction between those who are employed and those who are not employed is also found in much legislation (including, close to our themes, the statutory requirement for employers to insure). The tensions, also, are by no means restricted to tort.27
In light of the variety of different relationships which may be involved, the need for a more positive and more flexible way of understanding the problematic dichotomy has been increasingly recognized as desirable both in relation to tort, and more generally. So far as tort is concerned, the Court of Appeal achieved new flexibility in Viasystems v Thermal Transfer.28 Prioritizing function over form made it possible for the Court to recognize an idea of dual employment. A more recent Court of Appeal has described this as a ‘William Ellis moment’, where ‘their Lordships picked up the ball and ran with it thereby creating a whole new ballgame—vicarious liability even if there is strictly no employer/employee relationship’.29 The Supreme Court in Various Claimants took up and clarified the rules of this new game in terms of the purpose of vicarious liability. Consistently with the discussion in this chapter, one route to understanding this new game is to consider ‘employees’ as those who form part of the risk-bearing enterprise associated with the employer, whereas independent contractors are risk-bearers in their own right.30 It is quite possible that insuring obligations and expectations may emerge as relevant factors in interpretation of the intended relationship, as the existence of a classic ‘contract of employment’ becomes increasingly inadequate as a guide. While more traditional approaches have focused on tests such as ‘control’ and ‘integration’, the law has now arrived at a position where there is no set list of factors which will determine an employment relationship for the purposes of vicarious liability.
The second limb, the ‘course of employment’, has been subject to equally significant development in recent years. Before Lister v Hesley Hall,31 English courts focused on whether the servant was conducting the master’s business, or carrying out authorized acts, albeit in an unauthorized (or even prohibited) fashion.32 Since Lister, the focus has shifted. Courts have asked whether there is a relevant ‘close connection’ between the tort and the employment.33 That test is apt to include more instances of deliberate and self-seeking wrongdoing than earlier formulations.34 Equally, the idea of a ‘close connection’ may be seen as resting on a different underlying approach. Whereas the ‘employer’s business’ approach may be thought to be a mixed idea, which could operate either because the employer retains a degree of control at some level, or because the employer is the intended beneficiary (however misguidedly) of the act, the ‘close connection’ test can be seen as relating more directly to the identification of risks which can fairly be described as incidental to the employment.35 Whether such risks may be absorbed, or distributed, by the employer, depends on other features of the multi-party picture.
Finally, and very importantly, courts will increasingly consider the issues relevant to the ‘close connection’ or ‘course of employment’ criterion to be relevant also to definition of a relationship as one effectively of employment,36 and courts increasingly feel the need to identify the underlying functions of the concepts involved, in order to determine their boundaries.37 Both of these developments reveal the extent to which the established concepts have been under pressure. This is not surprising. Surrounding legal changes include the development of loss-spreading as a widespread technique, and alterations in the nature of contracting for work. To this may be added changes in tort law itself which facilitate the division, transfer, and spreading of risks. To suggest that courts have simply been confused into thinking that vicarious liability has some association with the handling of risks misrepresents the extent of legal, not just social, change.
10.2.2 Incidence of vicarious liability
The operation of vicarious liability is not entirely confined to employment cases, even including their extensions. For example, a similar principle also applies to make one partner liable for the torts of another partner. The position is currently enshrined in legislation, though it appears this was intended as codification of the common law position.38 Given the professional context of most partnerships, the provision tends to have its greatest application in cases of fraud or deceit. In cases of fraud more generally, outside partnership cases, the language employed is that of ‘principal’ and ‘agent’. It seems that only in cases of fraud, or the driving of vehicles, is the language of principal and agent used in this context in English law, and these two cases have little in common. In cases of fraud, liability attaches within the agent’s authority: actual, usual, or apparent.39 It is of very long standing.40 Liability for fraud illustrates some of our general points in 10.1. Lord Mcnaughten in Lloyd v Grace, Smith & Co referred to the early idea that of two innocent parties, the principal who appointed the agent and clothed the agent with authority should bear the loss, rather than an innocent stranger,41 proceeding to add that principals (in this case solicitors) could insure the ‘fidelity’ of their employees or could require employees with relevant functions to secure insurance.42 This is an excellent illustration of the way that loss-spreading rationales may supplement principles based essentially (in this instance) in fairness.43
Vicarious liability has operated in a range of ways beyond the established category of employment, in particular in relation to the vicarious liability of unincorporated associations.44 Beyond this, it has also been argued that it operates in special circumstances to make an employer liable for the torts of an independent contractor. This appears to break through the basic dichotomy between employees and independent contractors, even with its newly recognized flexibility.45 Although there clearly is some liability where harm results from the acts of independent contractors, such cases can arguably be conceptualized as involving breach of a primary (typically, ‘non-delegable’) duty attached to the defendant, so that they are not instances of vicarious liability at all.46 They have, in other words, been differently analysed by the courts, and while Ward LJ in JGE hinted that the development of such duties in English law is possible,47 it is arguable that the new flexibility in vicarious liability itself will make this less likely.
In risk-allocation terms, the law’s position is that independent contractors are held responsible for the risks of their own activities (they are independent risk-bearers); but non-delegable duties (whether contractual, statutory, or at common law) may nevertheless place the same risks with other parties, who cannot escape liability by contracting for the duty to be discharged.
10.2.3 Justifications and the role of loss-spreading
Most authors who accept that vicarious liability is secondary liability also embrace the idea that justifications for the doctrine of vicarious liability are varied, overlapping, and largely policy oriented;48 and this appears also to be the position adopted by the English courts.49 Paula Giliker, in a recent comparative study of the operation of vicarious liability in a number of jurisdictions, found support in case law for rationales falling into four broad categories. These were: first, fault and ‘identification’;50 second, victim compensation and loss distribution, including distribution through insurance; third, deterrence (in this instance, the idea that liability will encourage precautions); and fourth, fair allocation of risk given that enterprises create risks and gain from them.51 Both aspects of the second are closely linked with insurance. Patrick Atiyah, writing in 1967, also identified ‘social insurance’ as a relatively modern justification, to be added to earlier rationales.52
It has been objected that ‘loss-spreading’ is an incoherent explanation of vicarious liability because its logical conclusion is social insurance for accidents via the state, negating any role for tort law.53 We think it important to rebut this suggestion, which in our view generally misstates the part played by loss-spreading in the law of obligations in a number of ways. First, state involvement is a more complex question than this argument suggests, for reasons explained in Chapter 6. Even to the extent that loss-spreading is adopted as a social goal, the state may have significant reasons for leaving some loss-spreading to the market. In particular, loss-spreading is not costless, and priorities in the spreading of losses must be set. Not surprisingly, many aspects of the loss-spreading function, and indeed the determination of loss-spreading priorities beyond a certain range, are left to the private sector.54 Second, the private interest in loss-spreading is illustrated by the fact that parties have engaged in loss-spreading and insurance for several centuries, often it seems despite the inclinations of the law and of social policy.55 Private parties devote considerable resources to achieving loss-spreading or resisting its burden, and the law of obligations has necessarily responded to such efforts.56 Third, and related to this, the loss-spreading effects of the law of obligations are not reducible to a single collective purpose. Rather, they emerge from an amalgamation of multiple layers of risk allocation, and of legal response.
Despite these observations, it is perfectly clear that neither loss-spreading, nor the availability of insurance funds, has been the sole rationale for vicarious liability. It is also clear that loss-spreading rationales were not behind the initial articulation of the core concepts still employed, albeit in adapted form. But it is also true to say that the approach of courts even at that formative stage approached liabilities essentially in terms of risks; and that judicial policy in respect of the likely burden of liability suffused this process.57 Like the idea of fault, these exercises set boundaries to the broad potential liabilities then emerging. These factors help to frame our subsequent discussion.
10.3 Risk Allocation and Loss-Spreading
10.3.1 Contractual origins
Mid-nineteenth-century expressions of the underlying concepts of vicarious liability were exercises in the allocation of risk, and consciously so. They clearly contained purposive elements, most plainly in the context of employment. They were not (yet) related to liability insurance, as such insurance had not yet emerged outside the maritime context; but common conceptual roots made the interlocking of vicarious liability and liability insurance a natural development. Indeed it was the partial resolution of issues raised by vicarious liability in the Employers’ Liability Act 1880 which led directly to the existence of liability insurance business.
In the middle of the nineteenth century, many claims were made against individuals, including individual householders and employers. However, in the same decades that key concepts were laid down, the railways were transforming the country both physically and economically.58