Calif. DOI wins 20-year court battle against Mercury Insurance

Mercury Insurance Company was denied a petition for review by the California Supreme Court, thereby letting stand a $27.6 million fine from the Department of Insurance — the largest in the department’s history against a property and casualty insurer.

In 2015, Mercury was fined $27.6 million for charging consumers unapproved and unfairly discriminatory rates in violation of Proposition 103, which prevents auto insurers from charging excessive rates and requires that rates be approved by the commissioner.

Despite warnings from the department to discontinue the practice, Mercury continued to allow its auto insurance agents to charge consumers illegal fees on top of their premium.

As part of the scheme, Mercury illegally labeled its “agents” as “brokers,” implying that they worked for the consumers, and allowed them to charge $50 to $100 in unapproved fees.

The practice affected more than 180,000 transactions from 1999 to 2004, resulting in the collection of at least $27,593,562 from consumers.

“Since Proposition 103 was enacted, Mercury has looked for ways to evade the Insurance Commissioner’s regulation of its rates,” said Insurance Commissioner Ricardo Lara in a statement. “The Department repeatedly told Mercury to stop this scheme, where Mercury implied its agents were brokers working for the consumers, but Mercury refused to do so. This is a victory for consumers that sends a message to insurers that they cannot circumvent Proposition 103’s consumer protection laws in an effort to increase their profits and that the Department will stay the course — even if it takes 20 years —  to penalize insurers for illegal conduct.”

During the five-year period of the illegal practice, Auto Insurance Specialists (AIS), Mercury’s largest independent agent, incentivized by the scheme placed 90% of its California automobile business with Mercury. AIS’ business nearly doubled the placed premium from $225 million in 1999 to $400 million in 2003 and 2004 — premium that may have gone to other insurers had Mercury complied with the law.

“Part of my responsibility as Insurance Commissioner is to ensure a vibrant insurance marketplace which requires all companies to obey the rating laws so no company gets an unfair advantage over the others. And here that advantage came at the expense of consumers who were charged unfairly discriminatory rates for their insurance,” added Commissioner Lara.

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