By Timothy Darragh, BESTWIRE
August 16, 2019
SACRAMENTO, CA - The California Supreme Court has denied a petition by Mercury Insurance Co., letting stand a record $27.6 million fine the state Department of Insurance levied on the company for illegally charging broker fees on its automobile policies.
The court's denial of Mercury's petition for review ends a 20-year-long case and upholds the largest fine the department has imposed on a property/casualty company for violations of the state's Proposition 103.
The department issued the fine in 2015, saying Mercury charged unapproved fees of $50 to $150 to its auto insurance customers (Best's News Service, Jan. 12, 2015). The fees, it said, should have been part of the premium rates approved by the department.
California Proposition 103, passed by the voters in 1988, prevents auto insurers from charging excessive rates and requires rate approval by the commissioner.
A year after the department issued the fine, a Superior Court judge in Orange County told the department to vacate the order, saying the fees did not violate the law and the department took too long to issue its notice of noncompliance (Best's News Service, Aug. 18, 2016).
But in May, the California Court of Appeal reversed that ruling. It said the Superior Court judge failed to consider adequately the weight of the evidence provided by the department and that the fees should have been part of the premiums (Best's News Service, May 8, 2019).
"Since Proposition 103 was enacted, Mercury has looked for ways to evade the insurance commissioner's regulation of its rates," Insurance Commissioner Ricardo Lara said in a statement. "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."
Lawyers for Consumer Watchdog, which also fought Mercury in the case, said the final decision was a victory for the rule of law.
"Mercury's illegal scheme resulted in tens of millions in overcharges to California consumers who purchased a Mercury policy," said Pamela Pressley, Consumer Watchdog senior staff attorney. "The California Supreme Court's decision sends a strong message that insurance companies cannot evade the law by tacking on extra fees on top of approved premiums."
Mercury said in a statement it is disappointed "the California Supreme Court declined our petition to hear our appeal of the appellate court's reversal of the trial court's decision."
Mercury said it did not benefit from the fees because they were charged and collected by independent brokers. "The fees were disclosed upfront, and customers agreed to pay those fees," it said. "However, for more than a decade, Mercury has prohibited anyone who sells our products from charging broker fees. This is still our policy today and we continue to focus on providing our customers with high-quality service and products at competitive rates."
By adding a separate broker fee, the department said, Mercury created a major incentive for Auto Insurance Specialists, Mercury's largest independent agent, to place most 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, Lara's statement said.
"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," Lara said. "And here that advantage came at the expense of consumers who were charged unfairly discriminatory rates for their insurance."
Most Mercury General Corp. companies currently have a Best's Financial Strength Rating of A (Excellent).
The top five writers of all private passenger auto insurance in California in 2018 were State Farm Group, with 13.74% market share; Farmers Insurance Group, with 10.68%; Berkshire Hathaway Insurance Group, with 9.7%; Allstate Insurance Group, with 8.99%; and Auto Club Enterprises Insurance Group, with 8.69%, according to BestLink.
(By Timothy Darragh, associate editor, BestWeek: [email protected])