Fine Print Contains Hidden Penalties, Taxpayer Costs
Santa Monica, CA — The billionaire chairman of Los Angeles-based Mercury Insurance Company is sponsoring a ballot measure that would legalize surcharges of hundreds of dollars for automobile insurance, penalize good drivers for accidents that are not their fault, and lead to more uninsured motorists.
Under the proposal, aimed at the June 2010 ballot, people who stop driving for more than three months or were previously uninsured would be forced to pay more when they restart their insurance.
These include laid-off employees, recent graduates, retirees forced back to work, people buying insurance for the first time and residents who move away from cities with good mass transit systems. Such surcharges are currently unlawful under the 1988 insurance reform law, Proposition 103, but Mercury has repeatedly violated that and other state insurance laws.
In a letter to Mercury’s Chairman, George Joseph, Consumer Watchdog called the proposal “a declaration of war on millions of Californians whose plight you clearly do not understand,” and called on him to withdraw it. Joseph has not responded. Download a copy of the letter here.
“This measure hurts middle- and working-class Californians because it allows insurance companies to increase auto insurance rates, raising costs for struggling families during an economic crisis,” said Harvey Rosenfield, founder of Consumer Watchdog and the author of Proposition 103. “If people opt not to drive for a while and instead take mass transit or carpool, they would be charged a penalty once they start driving again. That’s unfair.”
Mercury’s initiative: deceptive title, higher prices for everyone
The Mercury initiative is deceptively dubbed the "Continuous Coverage Auto Insurance Discount Act" and purports to offer a “discount” to motorists who have not had a lapse in insurance coverage for longer than three months over the last five years. But, according to a 2005 Court of Appeal decision invalidating Mercury-sponsored legislation similar to this proposed initiative, the proposed "discount" actually raises rates by as much as 40% for many motorists. (Foundation for Taxpayer and Consumer Rights v. Garamendi, 132 Cal. App. 4th 1352, pages 1367-1369.) Additionally, Mercury’s plan would let companies peer into consumers’ insurance claim history and charge more to customers who filed claims, even if they were entirely without fault.
The measure will also cause the number of uninsured motorists to rise, leading to higher premiums across the board. According to the Insurance Information Institute, the number of uninsured drivers is expected to swell to more than 20% in California by 2010 as a result of the economic downturn. The proposed initiative will worsen the situation by making it more expensive for people to restart coverage.
With more uninsured motorists on the road, the cost of auto insurance for everyone will go up because insurers will charge higher premiums to cover the expense of an accident where the driver at fault does not have insurance. When uninsured drivers get into an accident and visit the emergency room, taxpayers also end up paying the tab.
A bailout for Mercury after a bad year for business
Consumer advocates noted that this effort to raise rates and place taxpayers on the hook for more uninsured claims comes after Mercury recorded one of its worst fiscal years, posting a $240 million loss in 2008. Its stock price is off more than 40% from its 2008 high and the firm recently laid off more than 300 employees.
“After dropping to the bottom of Forbes’ list of the world’s 1,000 billionaires and enduring the worst year for his company in at least a decade, George Joseph wants a bailout from his customers,” said Doug Heller, Executive Director of Consumer Watchdog. “If you cancel your auto insurance and quit driving for a few months to save some money in bad times, you shouldn’t be penalized to restart coverage.”
Hidden agenda to raise rates even if not at fault
In a provision buried in the fine print, the proposed initiative would allow auto insurance companies to raise premiums on a customer who files any claim, including when he or she was not at fault, for instance when hit by a drunk driver or rear-ended while at a stop sign. This “claims history” penalty would apply to innocent motorists even if the claims were paid by the at-fault drivers’ insurance company. In fact, insurers would be allowed to charge more if a customer simply called to discuss a possible claim, even if it is never filed. Losing discounts because a policyholder used his or her insurance policy is an outrageous practice that is currently prohibited in California.
“This new use-it-and-lose-it system is wrong,” Rosenfield said.
Corruption of the political process to legalize unfair practices, boost profits
Joseph, who in 2005 was listed by Forbes as the 283rd richest person in the U.S and is still worth more than a billion dollars, has a long history of attempting to subvert consumer protection laws, giving state lawmakers millions of dollars to do his bidding. Year after year, Joseph has sponsored legislation to free his company from laws regulating the handling of accident claims, sales practices and control over the rates Mercury can charge.
A proposal similar to Joseph’s initiative was passed by the state legislature and signed into law by then Governor Gray Davis in 2004 after Mercury showered lawmakers and Davis with more than a million dollars in contributions; Consumer Watchdog and other groups went to the courts, which in 2005 invalidated the legislation as an unconstitutional amendment to voter-passed Proposition 103. In 2004, George Joseph’s investment fund was the target of an FBI subpoena in connection with an investigation into political corruption in Sacramento. More information about George Joseph and Mercury Insurance is available at www.ConsumerWatchdog.org.
Complaints about Mercury’s rates and practices have resulted in numerous legal rulings against the company. Just last year, Mercury was hit with a $3 million jury verdict for refusing to pay a legitimate claim for water damage to a small business. Mercury is also presently facing charges, brought by the California Department of Insurance, that it unlawfully overcharged its customers.
“This deceptively worded attempt to fool the voters is just another example of why Mercury cannot be trusted,” Rosenfield said.
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