California Accuses Insurer Mercury Of Overcharging Customers

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Mercury Insurance Group, which is bankrolling a controversial ballot initiative on car insurance, was accused by state regulators Monday of overcharging California motorists and homeowners for coverage.

The state’s third largest car insurer, Mercury "may have illegally overcharged thousands of Californians," according to the state Department of Insurance. A spokesman for the department, Darrell Ng, said it wasn’t immediately clear how widespread the alleged violations were or how big a fine Mercury would face if the charges prove true.

Nonetheless, the department said Mercury has already made refunds totaling $77,853 because of the problems uncovered by department investigators. Mercury controls about 10 percent of the California car insurance market.

The charges stem from a routine exam conducted in spring 2007. Investigators found that Mercury appeared to have "disregarded California’s consumer protection statutes and overcharged consumers," Insurance Commissioner Steve Poizner said in a press release.

Mercury said it will fight the charges, saying "we don’t engage in practices that would overcharge our customers." The insurer accused Poizner, who is running for the Republican nomination for governor, of publicizing the allegations to advance his "political interests."

Ng acknowledged that his department usually doesn’t announce such charges. But it did so in this case because Mercury is accused of failing to follow through on promises to correct previously uncovered violations, he said.

Mercury "has apparently continued to violate the law despite agreements with the state to terminate its illegal behavior," Poizner said in his press release. The previous violations generated fines totalling $500,000, Ng said.

Among other things, the department said Mercury charged motorists "excessive rates" after they were in accidents that weren’t their fault. The company also refused to cover motorists in certain jobs, including bartenders, cocktail waitresses, painters and artists, the department said.

Ng said the allegations aren’t directly tied to the issues raised in Proposition 17, a June ballot initiative largely funded with $3.5 million of Mercury’s money.

But the charges instantly became part of the debate over the proposition.

The proposition’s leading critic, prominent consumer advocate Harvey Rosenfield, said the charges are further evidence of Mercury’s anti-consumer orientation.

"This ought to put the nail in the coffin for Prop. 17 for any voters paying attention," Rosenfield said.

But Kathy Fairbanks, a spokeswoman for the campaign for Proposition 17, said the charges are irrelevant to the issue on the June ballot.

The allegations aren’t "related to what Prop. 17 would do or how it would operate," she said by e-mail.

Current law lets car insurers give loyalty discounts to long-standing customers. Proposition 17 would let them extend the discounts to other companies’ customers. The proposition’s backers say this would bring more competition to the market.

But Rosenfield says this could mean higher premiums to drivers who didn’t have car insurance previously – a violation of Proposition 103, which he wrote.

The higher premiums would result from California’s "zero sum" rate-making principles, he said. That means a discount offered to some drivers must be offset by surcharges on others, according to an analysis of Proposition 17 by the Department of Insurance.

But the department also said that under certain circumstances, there wouldn’t be any surcharges. Fairbanks said Proposition 17 wouldn’t raise anyone’s premiums.

The allegations filed Monday could result in suspension or cancellation of Mercury’s insurance licenses. But Ng said "that’s not something we are actively considering."

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