Lawsuit Challenges Special Interest Legislation; Mercury Insurance Gave $895K to Lawmakers and Governor in 2002-2003.

Los Angeles, CA–Consumer advocates and civil rights groups have gone to court to invalidate controversial legislation legalizing violations of insurance reform Proposition 103.

The suit asks the court to invalidate SB 841, a bill sponsored by Mercury Insurance Company that authorizes insurance companies to surcharge previously uninsured motorists applying for insurance for the first time. Proposition 103 specifically forbids such surcharges, and the state’s past and present insurance commissioners, Harry Low and John Garamendi, opposed the legislation as violating Proposition 103 and the commissioner’s regulations. Moreover, the California Constitution prohibits the legislature from making hostile changes to Proposition 103.

“In direct violation of [Proposition 103], S.B. 841 would allow insurers to impose a surcharge that is triggered solely by the fact that a driver does not already have insurance,” the groups’ lawsuit charges. “S.B. 841 is nothing less than the Legislature’s attempt to redraw the constitutional boundaries that the voters drew in the exercise of their initiative power.”

According to the complaint, Mercury showered state lawmakers with over $895,000 in campaign contributions beginning in early 2002, including $35,000 to Sen. Don Perata (D-Oakland), author of the measure, and it passed the Legislature on July 17, 2003. Mercury‘s contributions included $175,000 to ex-Governor Gray Davis‘ anti-recall effort after he signed SB 841 in August. Davis had vetoed a virtually identical bill last year on the grounds that it violated Proposition 103.

The groups — Consumers Union, Public Advocates, Southern Christian Leadership Conference, National Council of La Raza and The Foundation for Taxpayer and Consumer Rights — asked the Los Angeles Superior Court to strike down the law in accordance with court decisions prohibiting legislative attempts to undermine the voter-approved initiative.

Consumer advocates have gone to court twice in the last 8 years to challenge amendments to Proposition 103 made by the California Legislature. They prevailed each time. In the landmark 1995 California Supreme Court decision on legislative amendments to voter-approved initiatives, the Court stated:

“Pursuant to article II, section 10 subdivision (c), of the California Constitution, the Legislature lacks the authority to amend Proposition 103 except to further the purposes of the initiative.”

This California Supreme Court ruling confirmed that the Legislature is constitutionally prohibited from enacting a law that conflicts with the initiative’s purposes. According to the lawsuit just filed by consumer advocates to invalidate SB 841, because the Mercury-sponsored legislation eviscerates a key purpose of Proposition 103 — to prohibit surcharges on previously uninsured drivers – it “is an unconstitutional amendment of Proposition 103.”

The groups are asking the Court to protect consumers from the unlawful automobile insurance surcharges as allowed by SB 841. Unless the court invalidates SB 841, according to the suit, people who lack prior auto insurance coverage, including new drivers and those that have had a lapse in coverage of more than 90 days, are in “imminent danger of being surcharged or irreparably having to forego insurance”; this translates into “more uninsured drivers on the road, which raises the cost of uninsured motorist premiums to all insured drivers.”

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