The principle behind insurance is to protect assets in cases of liability arising from disasters. Theoretically, then, there are two ways to effectively insure oneself: (1) have lots of assets, such that paying damages would not affect you, or (2) avoid disasters. However, California law requires proof of insurance to be carried in at least two circumstances. What follows is a discussion of those circumstances and how to obtain self-insurance.
Labor Code section 3700 requires employers to maintain workers’ compensation insurance to cover workers in case of workplace injury. The California Department of Industrial Relations (DIR) does have regulations1 in place to allow employers to insure themselves. The DIR website outlines the requirements for self-insurance, the application process, and the requirements for administering these programs. Before considering self-insurance, check out these requirements from the DIR:2
“Employers wanting to self insure their workers’ compensation liabilities must apply to the State of California, Office of Self Insurance Plans (SIP) for approval.
“The private sector application process for a new employer (not currently self insured in California) takes about three to four months. During that period, SIP evaluates the application to determine the applicant’s financial strength, proposed benefit delivery system, and loss prevention program. Current regulatory financial requirements for an organization desiring entry into self insurance are:
“Each subsidiary or affiliate company of a private applicant must file a separate application to become self insured. They may apply with the parent company or individually, and the same application form is completed by the subsidiary/affiliate.
“Group self insurance by non-affiliated companies is permitted under California regulation, for both private and public sector employers. During 2001, group self insurers began forming in the private sector for the first time. The first such application was approved for new-car dealers, effective January 1, 2002.
“Current regulations permit existing private self insurers of net worth over $10 million to add new subsidiary or affiliate companies with an application for an interim certificate. This provides immediate self insurance for the new subsidiary/affiliate company and is valid for 180 days. During the 180-day period, a three-page application for a permanent certificate must be filed and approved prior to the expiration of the interim certificate.”
Vehicle Code section 16020 requires drivers and owners of motor vehicles to carry proof of financial responsibility inside the vehicle at all times. For those looking to establish financial responsibility through self-insurance, the Vehicle Code allows only a select group of vehicle owners to self-insure. If you would like to self-insure your motor vehicles, you need to either (1) be the registered owner of more than 25 vehicles,3 or (2) have vehicles registered for the transport of property.4 Large fleet owners can obtain a certificate of self-insurance from the DMV upon showing that they have adequate resources to cover bodily injury of $15,000 per person and $30,000 per accident and property damage of $5,000.5 The Vehicle Code is not clear on whether sufficient resources should be shown to cover one accident or 25 accidents, though. Property transporters can obtain a certificate of self-insurance from the DMV by filing a form along with a deposit of $305,000 to $755,000, depending on the gross vehicle weight rating of the fleet.6 Also, property transporters may be required to provide additional proof of financial responsibility, depending on the nature of the property being transported.7
Based on the survey of law governing self-insurance in California, it does not look as if agencies mandating insurance coverage are willing to take promises from employers or drivers to avoid disasters in lieu of showing adequate financial resources to cover liabilities that may arise. This may seem like a sweetheart deal for the insurance companies out there. But having seen how people handle legal matters when acting as their own attorney, I am comforted by the fact that it is that much harder for them to act as their own insurer.
