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CA Department of Insurance

Commissioner Jones wins major court case against Mercury challenging rate reduction

News: 2017 Press Release

For Release: February 13, 2017
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Commissioner Jones wins major court case against Mercury challenging rate reduction
Appellate court affirms Commissioner's authority to prohibit pass thru of brand advertising costs to consumers
SACRAMENTO, Calif. - Insurance Commissioner Dave Jones won another critical legal victory, this one against Mercury Insurance Company and a coalition of insurance industry groups in the California Court of Appeal Friday. Mercury and other insurers filed suit against Commissioner Jones to challenge his authority to protect consumers from having to pay millions for an insurance company's "institutional" or "brand" advertising expenses. The insurers also argued the commissioner's order reducing Mercury's homeowners' insurance rates by 5.4 percent, saving consumers $11,745,102, was unconstitutional. The California Court of Appeal rejected the insurers' challenge and ruled in favor of Commissioner Jones on both issues. This is the third of three major legal victories won recently by Commissioner Jones, in which courts affirmed his right to protect consumers.

Insurers spend millions of dollars on advertising their brands including purchasing naming rights for sports stadiums and sporting event sponsorships. Commissioner Jones prohibited Mercury from passing on $2,806,152 in brand advertising costs to consumers because the advertising did not give them meaningful information about the insurance products sold by the insurer. The court upheld the commissioner's decision to prohibit insurers from passing along to consumers the cost of brand advertising, including advertising at sporting events and venue sponsorships.

"Insurers spend millions of dollars on brand advertising which provides zero benefit to consumers, including paying tens of millions for stadium and arena naming rights and sponsorships of tournaments and other sporting events,' said Jones. "The appellate court rejected the insurers' legal challenge and affirmed my authority to stop insurers from passing along to consumers brand advertising costs, such as expenses for sports stadium naming rights, sponsoring sporting events, or advertising the name of the insurance companies on a blimp."

The insurance companies also attempted to undermine the commissioner's well-established authority to protect consumers from excessive rates, claiming the commissioner's order to reduce Mercury's homeowners' rates was unconstitutional. The court rejected the insurers' argument and upheld the commissioner's order to reduce Mercury's homeowner rates by 5.4 percent, which saved consumers $11,745,102.

"The insurance companies argued they have a constitutional right to a specific profit of their own choosing—the appellate court rejected that argument," added Jones. "The court held that I lawfully exercised the authority given to me by Proposition 103 to reject excessive rates. This decision is the third major legal victory this year in which an appellate court has upheld the Insurance Commissioner's authority to protect consumers and rejected insurance company lawsuits."

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Media Notes:
  • Mercury v. Jones ruling
  • Consumer Watchdog, a consumer advocacy organization, intervened and participated in the negotiations led by the Department of Insurance with Mercury.
  • Based upon Mercury's proposal to charge brand advertising to consumers, and its desired profit, Mercury had applied for a 3.9 percent rate increase, which would have raised consumers' rates by $8,418,455. Instead the Commissioner ordered their rates reduced by 5.4 percent.
  • This is the third major case this year in which an appellate court decided for Commissioner Jones against insurers challenging his authority. The Commissioner also won ACIC v. Jones and ACLHIC v. Jones.   

The California Department of Insurance, established in 1868, is the largest consumer protection agency in California. Insurers collect $310 billion in premiums annually in California. Since 2011 the California Department of Insurance received more than 1,000,000 calls from consumers and helped recover over $469 million in claims and premiums. Please visit the Department of Insurance website at Non-media inquiries should be directed to the Consumer Hotline at 800.927.4357. Telecommunications Devices for the Deaf (TDD), please dial 800.482.4833.

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