By Mike LaSusa, LAW 360
October 2, 2019
Law360 (October 2, 2019, 9:03 PM EDT) -- Mercury Insurance Co. has agreed to pay California authorities more than $41 million to resolve a long-running legal battle centering on allegations that its brokers tacked illegal fees onto auto policyholders’ premiums, the Golden State’s Department of Insurance announced on Tuesday.
The regulator described the multimillion-dollar settlement amount — the bulk of which has already been paid — as the largest-ever penalty imposed on a property and casualty insurer in California.
The state’s insurance commissioner, Ricardo Lara, said in a statement on Tuesday that the penalty shows that “no insurance company is above the law.”
“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,” Lara said.
Mercury denied any wrongdoing in a statement provided on Tuesday to Law360.
“We have decided to settle this case so that we can move forward to focus on providing California consumers the tremendous value they’ve come to expect for the past 58-plus years from Mercury,” the company said.
The $41.2 million payment stems from a $27.6 million fine initially levied in 2015 that has since accumulated roughly $8 million in interest, according to a settlement agreement between Mercury and the CDI. The insurer also agreed to pay an additional $5.5 million to clear up false advertising allegations that never made it to trial.
Mercury has already paid much of the $41.2 million total, according to the settlement agreement. The company has put up just over $35 million so far, and promised to pay the additional $6 million within five days of signing the deal.
Then-California Insurance Commissioner Dave Jones ordered Mercury to pay the initial $27.6 million fine in 2015 following a lengthy hearing before an administrative law judge.
Jones concluded that between 1999 and 2004, Mercury’s main brokers had unlawfully charged thousands of consumers $50 to $150 in fees on top of auto insurance premiums authorized by the CDI. According to the commissioner, the brokers actually served as agents of Mercury, and any fees charged by insurance agents must be approved by CDI and disclosed as part of a policyholder’s premium.
A state trial court threw out the fine in 2016 after holding, among other things, that the brokers’ fees were not part of the policyholders’ premiums, and therefore not subject to CDI approval, because they were assessed for “separate services” such as comparative rate shopping.
However, a state appeals court in May of this year reinstated the $27.6 million penalty saying the trial court ignored extensive evidence backing Jones’ position and improperly substituted its own judgment for the insurance commissioner’s.
Mercury asked California’s Supreme Court to review the case, but in August the justices said they would not take it up.
The insurance department is represented by Debbie J. Vorous of the California Attorney General's Office.
Mercury is represented by Jason D. Russell, Hillary A. Hamilton, Kasonni M. Scales and Adam K. Lloyd of Skadden Arps Slate Meagher & Flom LLP, Richard Gilbert DeLaMora and Spencer Y. Kook of Hinshaw & Culbertson LLP, and Mitchell C. Tilner and Kirk C. Jenkins of Horvitz & Levy LLP.
The Supreme Court case was Mercury Insurance Co. v. Lara (Consumer Watchdog), case number S256381, in the Supreme Court of California. The appellate cases were Mercury Insurance Co. et al. v. Dave Jones et al., case numbers G054496 and G054534, in the Court of Appeal of the State of California, Fourth Appellate District, Division Three.
--Additional reporting by Jeff Sistrunk. Editing by Emily Kokoll.