Any professional person owes their clients a personal duty. If this is breached, they can be held personally liable for any loss or damaged caused. Mostly, an employer is obliged to cover any liability and there is usually an insurance policy available to cover individual professionals. However, this is not always the case

1. The Personal Liability of Employees
and Sub-Contractors

2. Any professional person owes their clients a personal duty. If this is
breached, they can be held personally liable for any loss or damaged caused.
Mostly, an employer is obliged to cover any liability and there is usually an
insurance policy available to cover individual professionals. However, this is
not always the case.
Personal Duty

3. Most litigation involves plaintiffs suing solvent and well-resourced employers
and their insurers, rather than suing an individual person.
For the most part, naming an individual as a defendant makes no difference
to a claim. The reality is that the professional indemnity policy of the
employer will usually cover the company and the employee.
Negligence by an Employee

4. An employer is not obliged to indemnify an employee. But if an employee is
insured, they cannot be the subject of a recovery action by the insurer of the
employer.
However, there are some points to note:
• There are exceptions for serious and wilful misconduct by an employee,
and in these cases, the employee is not entitled to indemnity from an
employer. Employers can take action against employees who have
engaged in such conduct – for example, theft or other dishonesty
offences.
• An employer that has paid an excess because of professional negligence
of an employee can, if it wishes, ask the employee to pay the excess.
• If an employee is sued separately, the employer does not have the
obligation to pay the employee’s legal expenses.
An Employee’s Right to Indemnity

5. Professional employees should insist that their contract of employment
includes that the employer will:
• Organise professional indemnity insurance to cover any and all liabilities
incurred by the professional during the course of employment.
• Indemnify the employee against any such liability.
• Pay the applicable excess in relation to any claim and will not seek
recovery from the employee.
An Employee’s Right to Indemnity

6. Professionals that work on a sub contract basis operate as independent
contractors who are liable for their own actions. The default position for
any sub contractor is that they should have their own insurance.
Key issues for principals and sub contractors to consider are:
• If the principal wants to cover the sub contractor, then they need to make
sure the sub contractor is named in their policy.
• If not, consideration needs to be given to who will have conduct of a
claim should one be made.
• Consideration will need to be given to the excess payable. Principals are
often very unhappy about having to pay a much higher excess, and may
pursue recovery from a sub contractor who usually has a lower excess.
• Overall, sub contractors should not assume that the principal they are
working for will look after them in the event of a claim.
Sub-Contractors

7. Employers have vicarious liability to people that suffer loss by reason of the
conduct of their employees and sub-contractors. For example, if an employee
conducts fraud or even the liability incurred for by a sub-contractor if a brick
falls from a construction site and hits a person on the street.
There are situations where the employer is not vicariously liable at all;
including if a staff member defames another person in relation to a matter
completely outside the scope of employment. Generally, an employer is not
vicariously liable for the criminal acts or intentional misconduct of an
employee.
Employer’s Vicarious Liability

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Website www.optimuminsurance.com.au
Presentation Disclaimer –– “This material contains general information only and may not suit your
particular circumstances. To decide if a policy is right for you please carefully read the relevant Product
Disclosure Statement (PDS) and/or Policy wording. A copy of the PDS or policy wording is available by
contacting our office on 1300 739 861;”
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