Many of our employees drive their privately owned vehicles on company business. We’re concerned about their insurance. Can we make them provide us with a “Certificate of Liability Insurance” listing us as the certificate holder, so we’ll know for sure that their insurance is in effect? Also we’d like to require that they carry higher amounts of insurance than the state minimums. Can we do that? — Katie in Pasadena
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Allen Kato of Fenwick & West tackles this interesting question.
The short answer is ‘yes’ to the first question and ‘probably yes’ to the second question—with an important caveat discussed below.
As a condition of employment, an employer may mandate that employees who drive their private vehicles as part of their jobs comply with all applicable laws, including the obligation to purchase at least the statemandated minimum liability insurance. This raises the question of whether the employer must reimburse the employee for the cost of such insurance. For instance, California Labor Code Section 2802 requires employers to ‘indemnify’—reimburse—employees for all ‘necessary expenditures’ the employees incur in performing their job duties. The employer may reimburse employees by paying them at the IRS-approved mileage rate (just raised to 48.5 cents per mile) for each mile driven for work. This mileage reimbursement should cover all the employees’ vehicle operating expenses.
In theory, the same conclusion should apply where, as a condition of employment, the employer requires the employee to obtain liability insurance greater than the state-mandated minimum. The one fly in the ointment is whether the employee is entitled to reimbursement of the cost of this additional insurance under Labor Code Section 2802. There is a risk that if you don’t reimburse for this, an employee may bring a claim under California Business and Professions Code Section 17200, which allows employees to bring claims against an employer for ‘unfair’ business practices.
In the past, employees have brought Section 17200 claims against employers for unreimbursed expenses, arguing that the employer has unfairly profited by failing to reimburse employees for their expenses. In the same vein, employees could argue that the employer is unfairly profiting by reducing its own enterprise liability insurance coverage and requiring employees to carry—and pay for—higher individual insurance coverage. Although the employer may credibly argue that mileage reimbursement at the IRS-approved rate covers the employee’s higher insurance expense, employers should take into account the risk of a Section 17200 claim, however remote, in determining whether to require employees to carry liability insurance in excess of the state-mandated minimum.
Allen Kato is an associate at the San Francisco office of law firm Fenwick & West.