Mercury Insurance has been ordered by the California Insurance Commissioner to pay a historic $27.5 million penalty for willfully violating Proposition 103 by charging California consumers illegal auto insurance fees between 1996 and 2006.
In February, 2004, the California Department of Insurance (CDI) filed an administrative noncompliance complaint against Los Angeles-based Mercury Insurance Co. for “willfully misrepresenting the actual price insurance consumers could expect to pay” for auto insurance, charging premium in excess of the rates approved for Mercury by the Insurance Commissioner.
The complaint also charged that Mercury willfully subjected consumers to unfair rate discrimination in violation of Proposition 103, the California insurance regulation law that requires companies to obtain the approval of the Commissioner for the rates and premiums they charge consumers, and that prohibits unfairly discriminatory charges.
Consumer Watchdog requested the right to participate in the case and was granted intervention in May 2007; Consumer Watchdog, represented by lawyers at Consumer Watchdog and Arthur D. Levy, prosecuted the action with the Department.
Under Proposition 103, auto insurance companies are prohibited from charging agent fees without obtaining prior approval of the fees from the Insurance Commissioner.
Mercury circumvented Proposition 103 for over ten years by creating a sham “broker” system whereby it charged unapproved agent fees, called “broker” fees, to California consumers purchasing new Mercury auto insurance policies. California consumers were required to pay the $100 to $150 fee in order to get the policy.
On January 7, 2015, the Insurance Commissioner adopted an Administrative Law Judge’s (ALJ) 66-page proposed decision, finding that Mercury willfully violated Proposition 103 by charging California consumers unapproved and illegal agent fees when they purchased new Mercury auto insurance policies between 1996 and 2006.
“For ten years, Mercury enabled and promoted a system to avoid Proposition 103’s prohibition against illegal agent fees and bilk consumers out of millions of dollars,” said Harvey Rosenfield, author of Proposition 103 and counsel for Consumer Watchdog. “The $27.5 million fine shows that justice has finally been served against Mercury for years of flagrant violations of the law.”
The ALJ’s proposed decision found that a penalty of $27.5 million “against Mercury is reasonable given the totality of the evidence in this noncompliance proceeding.”
The ALJ’s proposed decision was based on evidence collected by attorneys representing Consumer Watchdog during a 13-day evidentiary hearing in 2013.
“Mercury Insurance is infamous for playing every angle in its effort to avoid accountability for cheating its customers, and the Commissioner’s decision marks a victory for both consumers and California,” said Pamela Pressley, Consumer Watchdog’s Litigation Director and an attorney on the case. “Mercury is finally being held accountable for years of illegally charging fees to California consumers.”