Colorado Supreme Court Recognizes New Defense for Employers Sued Based on Employee Wrongdoing

March 13, 2017

In In re Ferrer, 2017 CO 14, announced Monday, February 27, the Colorado Supreme Court recognized a new defense potentially available to employers in cases in which the employer is sued based on its employee’s negligence. In such cases, where the employer is willing to admit that the employee was acting within the scope of their employment—and thus that the employer will be responsible for paying a judgment against the employee—the Supreme Court held that any direct negligence claims against the employer should be dismissed.

Ferrer arose from a late-night accident in Lower Downtown, Denver, in which a taxicab driver struck two pedestrians, causing serious injuries. The plaintiff sued the cab driver for negligence and argued that the cab company, Yellow Cab, should be liable for the driver’s negligence under the doctrine of respondeat superior. The plaintiff also brought claims directly against Yellow Cab for its own alleged negligence in hiring, supervising, and training the driver, and in entrusting him with a vehicle.

Yellow Cab initially argued that the driver was an independent contractor, and thus Yellow Cab could not be liable for the damages caused by the driver’s negligence. In an amended answer, however, Yellow Cab changed course and conceded that the driver was an employee, and was acting within the scope of his employment. This concession meant that, as a matter of law, Yellow Cab would be required to pay any judgment for the damages caused by the driver under the doctrine of respondeat superior.

However, Yellow Cab also pointed to a line of authority from outside Colorado, principally McHaffie v. Bunch, 891 S.W.2d 8212 (Mo. 1995), providing that, when an employer concedes that it is liable for any damages caused by its employee under the doctrine of respondeat superior, the plaintiff is barred from asserting claims directly against the employer that are based only on the employee’s actions. The trial court agreed, and dismissed the direct claims against Yellow Cab; the plaintiff sought immediate review in the Colorado Supreme Court under Appellate Rule 21.

In a 4-3 divided decision, the Court (Justice Marquez writing) agreed with Yellow Cab, holding that “where an employer has conceded it is subject to respondeat superior liability for its employee’s negligence, direct negligence claims against the employer become redundant and wasteful.” ¶ 26. Because “both vicarious liability and direct negligence claims are tethered to the employee’s tortious acts,” the Court held that allowing the direct claims would be a waste of judicial resources, while not increasing the possible recovery for the plaintiff. ¶¶ 30-31. The Court also noted that evidence relevant to the employer’s negligence—such as the employee’s prior driving record—would be unfairly prejudicial to the employee. ¶ 32.

Importantly, the Court held that its rule applies even where a plaintiff may have evidence that could support an award of exemplary damages against the employer: “Because any direct negligence claims against the employer are barred, there can be no freestanding claim against the employer on which to base exemplary damages.” ¶ 45. The Court held that the plaintiff in Ferrer had not produced sufficient evidence to support an award of exemplary damages, but even if she had, the direct negligence claims against Yellow Cab should still be dismissed. On this point, the Court went beyond courts in other states, which have held that, where punitive damages against the employer may be at issue, direct liability claims should not be dismissed. See, e.g., Plummer v. Henry, 171 S.E.2d 330 (N.C. Ct. App. 1969).

Justice Gabriel dissented, joined by Chief Justice Rice and Justice Hood. The dissent would have held that the plaintiff’s direct negligence claims against Yellow Cab were based on Yellow Cab’s conduct, not the derivative conduct of the driver, and thus should not be dismissed. The dissent was also troubled by the potential unfairness of Yellow Cab initially claiming that the driver was an independent contractor, but changing course to take advantage of the McHaffie rule.

In Ferrer, the Court adopted a potentially potent defense for employers sued for the negligence of their employees. While application of the rule requires that the employer admit respondeat superior liability—and thus that the employer ultimately pay any judgment against the employee—that admission brings with it the benefit of dismissal of the direct claims against the employer. This decision could therefore eliminate claims against employers for their conduct in hiring, retaining, and supervising the employee as well as narrow the scope of discovery, potentially putting the employer’s conduct in hiring, supervising, or training the employee off limits from discovery. Removing direct claims against the employer may also implicate insurance coverage, and could provide a quicker path to settlement. Employers should be aware of this defense and discuss its potential use with their attorneys at the earliest stage of litigation.

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