By Lyle Adriano, INSURANCE BUSINESS
May 8, 2019
Mercury Insurance is facing $27.5 million in California state penalties for charging customers for illegal broker fees.
The insurer charged the additional fees in over 180,000 transactions with auto insurance customers, from 1999 to 2004, it is alleged. It is suggested Mercury charged an additional $50 to $150 per customer.
Originally, Mercury Insurance was fined in 2015 by the California Department of Insurance, but the decision was overturned in 2016 by an Orange County judge who ruled that the fees had been legally assessed for insurance brokers’ services (such as comparison-shopping) to customers.
However, the Fourth District Court of Appeal in Santa Ana said that the alleged brokers were actually insurance agents working for Mercury. The agents also provided no customer services and had no authority to charge fees, the district court found.
The agents, posing as brokers, “could charge unapproved and unfairly discriminatory fees for alleged separate services that would increase consumers’ cost of insurance,” said Justice David Thompson in the 3-0 ruling, who added that the additional fee violates Proposition 103 – a 1988 initiative that requires state approval of rates for auto as well as P&C insurance.
The San Francisco Chronicle reported that the $27.5 million fine is one of the largest the California Insurance Department has ever levied against an auto or home insurer.
In a statement, Mercury said that it was “disappointed and surprised that the appellate court reversed the trial court’s decision,” and that it would evaluate its options – which include appealing the decision.