Please apply tort law and the law of agency in the story of David, Home, and Nightwatchman Company. What liabilities do these guys owe to Freddy and what will their defense be?

There are three categories of tort law: strict liability torts, intentional torts, and negligent torts. Freddy's injury comes under the umbrella of negligent torts. Here, Freddy is injured because of negligence on David's part. While driving, David looked into his rear view mirror when Freddy bit Thomas on the arm. Because he was momentarily distracted, David drove into the other lane and hit an oncoming car. As a result of his negligence, Freddy was injured in the car crash. Under tort law, David will likely be held liable for negligence, and Freddy's Guardian Ad Litem can sue David for compensatory damages (money to pay for Freddy's medical expenses and lawyer's fees). 
Under the law of agency, the principal (in this case Nightwatchman Company) would be responsible for any injuries its agent (David) causes a third party (Freddy). However, David cannot successfully point to the law of respondeat superior as a defense. Respondeat superior holds an employer legally liable for an employee's actions within the scope of employment. So, in order to claim respondeat superior as a defense, the employee must have been acting on behalf of his employer at the time of the accident. This happens not to be true in David's case.
Although he was driving a company car at the time of the accident, David was not performing any duty on behalf of Nightwatchman Company, his employer. Therefore, David cannot resort to the respondeat superior defense. 
Freddy also cannot point to respondeat superior to hold Home responsible for his injuries. In other words, Home is not liable for Freddy's injuries because David is not an employee of Home. Rather, as a foster parent, David is an independent contractor. So, Freddy cannot hope to claim compensatory damages from Home for his injuries. Under tort law, however, Freddy's lawyer can argue that Home was guilty of Negligent Entrustment. The law of Negligent Entrustment states that a principal can be held liable for allowing an agent to use a "dangerous instrumentality" (in this case, a car) if he or she could have known that the agent was incapable of using it properly. 
In David's case, he was limited to driving for employment purposes only. Freddy's lawyer could argue that when David and his wife were interviewed, Home failed to ask for documentation certifying the validity of David's license for all types of driving. This argument is problematic, however, as the lawyer must be able to show a tendency towards dangerous behavior with a motor vehicle on David's part. The lawyer must also show that David's past violations of motor vehicle law led to other third party injuries and that this fact was known to Home.