Vicarious liability

Key Takeaways

• Vicarious liability is responsibility one party carries for another party's wrongful act because of the relationship between them, such as a principal and an agent.
• RCW 18.86.090 states that a principal is not liable for an act, error, or omission by an agent arising out of an agency relationship unless the principal participated in or authorized it.
• RCW 18.86.090 leaves a second, narrow path: liability reaches the principal to the extent the principal benefited from the act and the court determines it is highly probable the claimant could not enforce a judgment against the agent.
• RCW 18.86.090 protects the principal only. The broker who committed the act, error, or omission stays liable for it.

What It Means

Vicarious liability is liability for someone else's conduct, imposed because of the relationship between the two parties rather than because of anything the liable party did. The classic version is a Principal answering for an Agent who acted within the scope of the agency, which is why the doctrine turns up in every agency chapter of a real estate course. The course puts it as when a principal is responsible for the actions of an agent within the scope of the agency relationship.

Washington did not leave that question to the common law. Chapter 18.86 RCW is the state's codified law of real estate Agency, and RCW 18.86.110 says the duties under the chapter are statutory duties and not fiduciary duties, that the chapter supersedes the common law fiduciary duties of an agent to a principal, and that the common law continues to apply to the parties in all other respects. RCW 18.86.090 then writes its own rule for vicarious liability, and that rule is narrower than the common law version. The practical effect is that the buyer or seller who hired the broker usually walks away from the broker's mistake.

How It Works in Washington

RCW 18.86.090, titled Vicarious liability, is the controlling section and it is short enough to hold in your head. A principal is not liable for an act, error, or omission by an agent of the principal arising out of an agency relationship unless the principal participated in or authorized the act, error, or omission. That is the first path, and it turns on something the principal did.

The second path is narrow and has two parts that must both be satisfied: the principal benefited from the act, error, or omission, and the court determines that it is highly probable that the claimant would be unable to enforce a judgment against the agent. A benefit on its own is not enough. A solvent firm with errors and omissions coverage usually ends that argument before it starts.

Two neighboring sections finish the picture. RCW 18.86.100 says that unless otherwise agreed to in writing, a principal does not have knowledge or notice of any facts known by an agent that are not actually known by the principal, so what the broker knew is not charged to the seller automatically. RCW 18.86.110 replaces the common law Fiduciary Relationship duties an agent owed a principal with the statutory duties in chapter 18.86 RCW, while leaving the common law in place in all other respects.

Example

Ruth Callahan lists her Olympia house at $549,000 with broker Tim Braddock of Cedar Point Realty. On the seller disclosure statement RCW 64.06.020 requires her to deliver, she writes that the roof was replaced in 2011. Tim retypes it onto the marketing flyer as 2021. Ruth never reads the flyer and never raises the roof again.

The Wus buy at $541,000, find the 2011 roof three months after closing, and sue both Tim and Ruth for the $38,000 replacement cost. Ruth did not participate in or authorize the error, so RCW 18.86.090(1) takes her out of the first path. The Wus then argue she benefited by about $12,000, since a 2011 roof would have supported an offer nearer $529,000. That argument still has to clear the second half of the exception, and the court has to find it highly probable the Wus could not enforce a judgment against Tim. Tim's firm carries a $1,000,000 errors and omissions policy, so it fails. The case proceeds against Tim and Cedar Point Realty, and not against Ruth.

Common Mistakes and Exam Traps

• The common law answer is the wrong answer in Washington. RCW 18.86.090 says a principal is not liable for the agent's act, error, or omission unless the principal participated in or authorized it.
• The benefit exception has two parts, not one. The principal must have benefited, and the court must find it highly probable the claimant could not enforce a judgment against the agent.
• RCW 18.86.090 shields the principal, not the broker. A broker who misstates a material fact is directly liable for it, and the statute does not change that.
• Knowledge is not imputed automatically either. Under RCW 18.86.100, a principal does not have notice of facts known only to the agent unless the parties agreed otherwise in writing.