Department of Insurance wins 20-year court battle against Mercury Insurance as Supreme Court Denies Insurer’s Petition, upholding historic $27.6 million fine
News: 2019 Press Release
SACRAMENTO, Calif. — The California Supreme Court denied a petition for review by Mercury Insurance Company thereby letting stand a $27.6 million fine the Department of Insurance imposed on Mercury for charging illegal fees in violation of Proposition 103. The fine is the largest in the Department’s history against a property and casualty insurer.
In 2015, the Commissioner fined Mercury $27.6 million for charging consumers unapproved and unfairly discriminatory rates. Despite being advised for years by the Department of Insurance not to do so, Mercury continued to allow its auto insurance agents to charge consumers $50 to $150 in illegal fees on top of the premium the Department approved. Proposition 103, passed by the voters in 1988, prevents auto insurers from charging excessive rates and requires that rates be approved by the Commissioner.
“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. “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 twenty years--to penalize insurers for illegal conduct.”
Under the scheme, Mercury illegally labeled its “agents” as “brokers,” implying that they worked for the consumers rather than Mercury, and allowed them to charge and collect unapproved fees on more than 180,000 transactions from 1999 to 2004, improperly collecting at least $27,593,562 from consumers. The scheme created a major incentive for Auto Insurance Specialists (AIS), Mercury’s largest independent agent, to place virtually all of its policies with Mercury to the exclusion of other insurers, and resulted in different Mercury customers paying different amounts for the same policy, depending on what the agent charged in fees.
During this time, AIS placed approximately 90% of its California automobile business with Mercury, nearly doubling the placed premium from $225 million in 1999 to $400 million in 2003 and 2004, premium that other insurers might have received if Mercury had 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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Led by Insurance Commissioner Ricardo Lara, the California Department of Insurance is the consumer protection agency for the nation's largest insurance marketplace and safeguards all of the state’s consumers by fairly regulating the insurance industry. Under the Commissioner’s direction, the Department uses its authority to protect Californians from insurance rates that are excessive, inadequate, or unfairly discriminatory, oversee insurer solvency to pay claims, set standards for agents and broker licensing, perform market conduct reviews of insurance companies, resolve consumer complaints, and investigate and prosecute insurance fraud. Consumers are urged to call 1-800-927-4357 with any questions or contact us at www.insurance.ca.gov via webform or online chat. Non-media inquiries should be directed to the Consumer Hotline at 800-927-4357. Teletypewriter (TTY), please dial 800-482-4833.