Vicarious Liability, Judgment Proofing and Non-Profits

Abstract

This paper addresses the related questions of whether non-profit organizations should be held vicariously liable for the acts of their agents and whether those organizations should be able to avoid liability by engaging in judgment proofing. The central claim is that permitting a non-profit enterprise to engage in judgment proofing should not be presumed to undermine the deterrent effects of imposing vicarious liability. In the context of a for-profit enterprise, judgment proofing undermines the incentive for investors, who generally control the enterprise, to induce the enterprise to avoid risky behavior. However, judgment proofing has more complex effects on the incentives of the actors - e.g., donors, volunteers and employees - who control non-profit enterprises. After developing this theoretical point the paper goes on to provide a general definition of judgment proofing, outline the ways in which it has been regulated under Canadian law, and evaluate the merits of a recent decision holding that assets held subject to a charitable trust may be available to satisfy tort claims brought against the trustee. This decision restricts non-profits' ability to engage in one particular form of judgment proofing but its justification is questionable in light of the theoretical analysis developed in this article.

Note: This is a description of the paper and not the actual abstract.

Keywords: Non-profits, judgment proofing, vicarious liability

JEL Classification: G33, K22, L31