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dispute resolution | 05 Nov 2019
BY Nicole Gabryk , Rob Scott AND Zara Sher
ENSight

dispute resolution


Vicarious liability: insurance implications for deliberate actions of employees

While employers get to enjoy the benefit of the profits resulting from the deeds of their employees, they also create the risk of harm to others through the actions of their employees – this is why public policy dictates that employers should be held liable for the wrongful acts of their employees. The doctrine of vicarious liability, which has recently been developed by the Supreme Court of Appeal, will have implications for liability insurance covers.

The Supreme Court of Appeal (“the SCA”), in a recent decision in Stallion Security (Pty) Limited v Van Staden (526/2018) [2019] ZASCA 127 (27 September 2019), found the employer to be vicariously liable, and ordered the employer to pay damages, in circumstances where an employee acted intentionally, and “entirely for his own purposes”, because there was a sufficiently close link between the actions of the employee and the business of the employer. The employee in this case, a security guard, had been provided with an override key for the purpose of inspecting the interior of a building. He used the key to facilitate the robbery of an individual who was working late in the building and in the process the individual was murdered.

In arriving at its decision, the SCA determined that the South African law “should be further developed to recognise that the creation of risk of harm by an employer may, in an appropriate case, constitute a relevant consideration in giving rise to a sufficiently close link between the harm caused by the employee and the business of the employer”. (our emphasis added)

The yardstick for establishing vicarious liability is whether there is a sufficiently close link between the employee’s unlawful actions and the business of the employer. In view of the Stallion decision the yardstick of a “sufficiently close link”, traditionally satisfied through the employee acting in the course and scope of his or her employment, may now be satisfied simply through “the creation of risk of harm by the employer”.

The further extension of vicarious liability, driven by the development of public policy, presents even greater exposure to employers.

Importantly, are deliberate actions (such as that in the Stallion decision) even insurable?

  • In line with the principle of fortuity, deliberate actions are generally, in accordance with public policy, not insurable, although it is competent to expressly include such liability.

  • As public policy develops, many deliberate actions are increasingly insurable. For instance, insurance is given for liability for defamatory statements, crimes by employees and employer discrimination, to name a few.

  • Policy wording will therefore be an increasingly important aspect in determining what cover, if any, is afforded to an insured, or is assumed by an insurer. In the recent Scottish Court of Sessions decision, Mrs Fiona Elsie Burnett or Grant v International Insurance Company of Hanover Ltd [2019] CSIH 9 PD 4/16, a patron of a pub had died after being restrained by the pub’s bouncer. The public liability insurer rejected the claim on the basis that the insurance cover did not apply in instances where an individual was killed by an insured’s employee’s deliberate action:

    • Typically, liability polices contain a clause which excludes liability for “deliberate acts, wilful default or neglect by the insured, any director, partner or employee of the insured”. The insurer in the Court of Sessions decision argued that as the assault was a deliberate act, it triggered the exclusion clause.

    • The Court reiterated that a literal interpretation of the exclusion clause would lead to an absurd result and highlighted that the commercial context of the policy needed to be considered in interpreting the policy – the interpretative process in South African law is in line with this approach. See our previous articles on the subject of policy interpretation.

    • In its consideration of the factual and commercial context, the Court of Sessions took into account that the insurance policy had been given by the insurer to a security company, and that it was inevitable that employees of that company would, on occasion, commit assaults in the course of their duty. In this instance, the bouncer had not intended to kill the patron, which led the court to find that “the causing of the death was not a deliberate act”, within the meaning of the policy. The court rejected as absurd the interpretation of the exclusion contended by the insurer that the clause would allow the insurer generally to escape liability for all assaults. The insurer was accordingly found liable under the policy.

The further extension of vicarious liability, driven by the development of public policy, presents not only a greater exposure to employers, and therefore insureds, but also to insurers. Employers/insureds need to ensure that they obtain adequate insurance cover, and liability insurers need to understand and appreciate the extent of the risk that they are underwriting.

Rob Scott

Executive | dispute resolution

rscott@ENSafrica.com

+27 83 408 6751

Nicole Gabryk

Executive | dispute resolution

ngabryk@ENSafrica.com

+27 82 787 9792

Zara Sher

Associate | dispute resolution

zsher@ENSafrica.com

+27 82 310 3859