Mercury Insurance settles decades-long fight with Calif. DOI
The more than $41 million settlement payment is the largest in the California Department of Insurance's history.
Mercury Insurance Company has agreed to pay $41,188,505 to California, ending a two-decades-long legal fight with the California Department of Insurance (DOI).
The DOI said that the payment is the largest property and casualty payment in its history.
The payment resulted from a record $27.6 million penalty plus more than $8.1 million in interest. The California Supreme Court recently rejected Mercury’s request for review of the case and historic fine, prompting Mercury to pay the penalty, plus interest, and to settle a second phase for $5,460,868 that had not yet been tried in the courts. The second phase involved DOI allegations about false advertising that it was preparing to prosecute under the Unfair Insurance Practices Act.
The DOI’s commissioner, Ricardo Lara, said in a statement that “this was a hard-fought legal battle to protect consumers, defend Proposition 103, and make sure all insurers play by the rules in California. No insurance company is above the law.”
Allegations against Mercury
The DOI said that, in 1998, it discovered Mercury’s scheme to evade Proposition 103 protections. According to the DOI, Mercury misrepresented its agents as brokers, implying that they worked for the consumers rather than Mercury. The DOI asserted that Mercury then illegally allowed agents to charge and collect unapproved fees directly from consumers on more than 180,000 transactions from 1999 to 2004. At the time, according to the DOI, Mercury advertised its rates as lower than the competition but did not disclose it charged illegal broker fees on top of the rates.
The DOI alleged that the extra fees gave agents a huge incentive to place policies with Mercury, even if another insurance company’s policy would have cost the consumer less.
Aside from charging consumers unfairly discriminatory rates for a Mercury insurance policy and misrepresenting the amount of its rates in comparison to its competitors, Mercury’s use of unapproved fees unfairly edged its competitors out of large segments of the auto insurance market, the DOI asserted.
Legal battle
In 2016, the Superior Court of California ruled in Mercury’s favor on three different grounds and concluded that the penalty imposed by the Commissioner was a “manifest injustice” to Mercury.
The Court of Appeal then reversed the Superior Court’s decision over allegations the Superior Court did not give proper deference to the Commissioner.
According to Mercury, the fees at the heart of the dispute were charged and collected by independent brokers for the services they provided to their customers. The fees were disclosed upfront, and customers agreed to pay those fees, and no portion of the fees was ever collected by Mercury.
Although Mercury asserts it did nothing wrong, the company has decided to put an end to the dispute in the best interests of its customers, employees and other stakeholders.
In a statement, Mercury Insurance said, “The Superior Court of California resoundingly ruled in Mercury’s favor on three different grounds. This ruling was later inappropriately reversed by the appellate court, but we have decided to settle this case so that we can move forward to focus on providing California consumers the tremendous value they’ve come to expect for the past 58-plus years from Mercury.”
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