The deep pocket theory finds its genesis in the American Slang – deep pocket- usually used to refer to a person or organization that owns extensive financial means and resources. This phrase has been extensively used in the law of torts, environmental law, and other economic law jurisprudence. In practice, it implies that, as between two parties, one, the defendant, with a wealthier footing should bear the responsibility of financial loss.
Vicarious liability, in modern times, is sometimes based on “deep pocket” theory.
Vicarious liability is a legal concept in the law of torts that states that the principal is responsible for the acts or omissions of the agent party if such occurrence is within the scope of the performance of employment duties. Vicarious liability comes under the respondeat superior doctrine and is, thus, a type of strict liability.
Torts are civil wrongs that result in injury to another person or their property. The injured party can seek damages from the responsible party. The tort system is based on the factual determination that the defendant failed to meet certain standards.
In this context, the Deep Pocket theory proceeds on the assumption that the principal (usually a corporation) has more access to financial resources than the agent and a better ability to absorb the shock. The Principal partakes in the responsibility to pay for the injuries caused to plaintiffs.
In short, the liability is on the master in the case of a tortious act by the servant while performing his job per contract of work. It means the master will be liable to the victim for damages. However, the companies are not vicariously liable for the tortious acts of independent contractors.
The deep pocket theory prevails in multiple contexts, including:
- Product liability
- Employer’s vicarious liability
- Liability for abnormally dangerous activities
- Parental liability
- Liability for ruinous buildings
In a landmark judgment of MC Mehta v. Union of India (also known as the Oleum Gas Leak Case), the Supreme Court spurned the idea of unlimited damages in civil law and applied a principle known as the “deep pocket theory.” Per this principle, the quantum of compensation paid by a company should be proportional to its size and financial strength, standing as a deterrent. In other words, if a big and large corporation with humongous financial resources causes harm through a hazardous activity that has an overarching effect on the public and becomes a nuisance, it is under an obligation to pay a whooping check amount of compensation solely just because of its capacity to do so.