By Staff Writers, INSURANCE JOURNAL

October 2, 2019

https://www.insurancejournal.com/news/west/2019/10/02/541727.htm

Mercury Insurance Co. has agreed to pay more than $41 million to end a two-decade long battle with the California Department of Insurance battle over the Los Angeles-based carrier improperly tacking fees onto auto insurance policies and over false advertising claims.

The payment resulted from a record $27.6 million penalty plus $8.1 million interest, making it reportedly the largest property/casualty payment in CDI history.

The battle between Mercury and the CDI was fought up to the California Supreme Court, which in August rejected Mercury’s request for review of the case.

According to the CDI, Mercury agreed this week to pay the penalty, plus interest, and to settle a second phase 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.

“This historic settlement shows the Department of Insurance is steadfast in its fight to protect consumers, defend Proposition 103 and make sure insurers play by the rules,” Insurance Commissioner Ricardo Lara said in a statement. “When something sounds too good to be true, it usually is. Mercury made profits by ignoring the rules, and in California no insurance company gets a free pass.”

A Mercury spokesman provided the following statement:

“The Superior Court of California resoundingly ruled in Mercury’s favor on three different grounds. This ruling was later inappropriately reversed by the appellate court, but 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 Mercury spokesman in defense of the carrier also provided a number of bullet points:

  • The Court of Appeal, in an unprecedented and poorly-reasoned opinion, reversed the Superior Court’s decision, allegedly because the Superior Court did not give proper deference to the Commissioner, even though the Superior Court expressly acknowledged its requirement to give a “strong presumption of correctness” to the Commissioner’s findings.
  • In spite of that presumption, the Superior Court found that the Commissioner’s allegations were not supported by the evidence and ruled in Mercury’s favor.
  • Without justification, the Court of Appeal disregarded the trial court’s findings and reversed the judgment.
  • Although appellate courts are required to uphold a trial court’s factual determinations if they are supported by substantial evidence, the Court of Appeal here ignored that standard of review: Instead of remanding the case back to the Superior Court to confirm that proper deference was given to the Commissioner, the Court of Appeal simply stepped into the trial judge’s shoes and substituted its own factual conclusions.
  • Although Mercury and the California Superior Court agree that Mercury did nothing wrong, Mercury has decided to put an end to this 20-year-old plus dispute in the best interests of its customers, employees and other stakeholders.
  • It’s also important to note that the fees at the heart of this dispute were charged and collected by independent brokers for the services they provided to their customers. The fees were disclosed upfront and customers agreed to pay those fees, and no portion of these fees was ever collected by Mercury.

In 1998, the CDI discovered Mercury was trying to evade Proposition 103 protections, according to the department.

Mercury was reportedly 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, according to the CDI.

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, according to the CDI.

In the false advertising phase, it was 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 $5.4 million, which includes cost-reimbursements for the 20 years of litigation, and a roughly a half-million dollars in additional penalties.

Of the $41 million settlement, $36.2 million in penalties and interest will be paid to the California General Fund.

Nearly $5 million of the settlement amount will repay the Proposition 103 Fund, which benefits all ratepayers. The department’s Proposition 103 enforcement fund comes from a surcharge on insurance companies that they may pass through to consumers.