Historic $41 million payment closes book on decades-long court battle with Mercury Insurance Company
News: 2019 Press Release
SACRAMENTO, Calif. — Today Mercury Insurance Company agreed to pay $41,188,505 ending a two-decades long Department of Insurance legal fight – the largest property and casualty payment in the department’s 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 false advertising claims the department was preparing to prosecute under the Unfair Insurance Practices Act (Ins. Code, §790.03).
“Today is a testament to the tenacity of the Department of Insurance team who won this in court and kept the pressure on Mercury, which profited by skirting the law and taking advantage of consumers,” said Insurance Commissioner Ricardo Lara. “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.”
In 1998, the department discovered Mercury’s scheme to evade Proposition 103 protections. As part of the scheme, Mercury misrepresented that its agents were brokers, implying that they worked for the consumers rather than Mercury. 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, Mercury advertised its rates as lower than the competition, but did not disclose it charged illegal broker fees on top of the rates.
Under the scheme, 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.
“Mercury’s illegal actions misled consumers and undercut competitors, which gave them an unfair advantage in the insurance marketplace,” Lara said.
In the false advertising phase, the commissioner alleged that Mercury advertised its premium was lower than its competitors, when the premium was actually higher than advertised once the illegal fees were added. The commissioner settled those unfair practice claims for an additional $5,460,868, which includes cost-reimbursements for the 20 years of litigation, and a half-million dollars in additional penalties.
Of the $41 million payment, $36,227,637 in penalties and interest will be paid to the California General Fund. Nearly $5 million of today’s payment will repay the Proposition 103 Fund, which benefits all ratepayers, including those of Mercury’s competitors who played by the rules. The department’s Proposition 103 enforcement fund comes from a surcharge on insurance companies that they may pass through to consumers. Requiring Mercury to pay back the Proposition 103 Fund means the entire cost of prosecuting Mercury is borne by Mercury, and not by ratepayers.
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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.