Bill By Senate Leader Don Perata Was Sponsored by Mercury Insurance

Santa Monica, CA — Defending voter-approved Proposition 103 against an attack by an insurance company and its allies in Sacramento, a California Court of Appeal ruled today that a 2003 law signed by then-Governor Gray Davis was an unconstitutional amendment to the initiative because it conflicted with the initiative’s ban on auto insurance surcharges targeted at previously uninsured customers. Senate Bill 841, invalidated today by the Court, was authored by current Senate President pro Tempore Don Perata and sponsored by Mercury Insurance, a major campaign donor to both Perata and Davis.

“Today’s ruling is a victory for California consumers over insurers’ brazen effort to undo Proposition 103 in Sacramento, which would have led to more uninsured drivers and made it harder for people who need insurance to get it,” said Harvey Rosenfield, author of Proposition 103 and counsel for The Foundation for Taxpayer and Consumer Rights. “It was the insurance industry’s corrupt control over the legislature that forced voters to pass Prop. 103 in the first place. This ruling marks the third time in seventeen years that the courts have had to step in to defend the voters against attacks by insurance companies who think they are above the law and the Sacramento politicians who are in the insurance industry’s pocket.”

Proposition 103, approved by the voters in 1988, makes it illegal for an insurance company to charge higher premiums to, or to refuse to insure, motorists who were not previously insured. Los Angeles-based Mercury Insurance Company was sued for violating the law. Mercury then argued in court that it could not be sued for violating Proposition 103. (The Court of Appeal rejected that argument last year.) At the same time, Mercury went to Sacramento to get lawmakers to repeal this provision of Proposition 103. But the California Constitution bars legislators from tampering with ballot measures without the voters’ approval. Like many voter initiatives, Prop. 103 forbids amendments by the Legislature except those that “further the purposes” of the initiative.

In today’s ruling, the Court upheld a 2004 Los Angeles Superior Court decision that SB 841 unconstitutionally contradicted the provision of Proposition 103 that bars insurers from using “the absence of prior automobile insurance” in determining premiums. That provision provides all drivers equal access to reasonably-priced insurance, regardless of whether or not they purchased insurance in the past. Under SB 841, insurers would have been allowed to surcharge drivers because they had not previously had insurance, or because they had a lapse in insurance coverage of more than two years while in military service or more than 90 days in the last five years for any reason. In addition to Mercury, several other insurers currently face lawsuits for illegally surcharging motorists.

“After today’s ruling, insurers have no more excuses to not comply with the law,” stated Pamela Pressley, counsel for The Foundation for Taxpayer and Consumer Rights, who argued the case before the Court of Appeal. “The next step will be for the courts and the Insurance Commissioner to enforce the ban on illegal surcharges against companies who have continued to violate Proposition 103 and refund money to those consumers that were forced to pay more.”

The lawsuit to overturn SB 841 was brought by the Foundation for Taxpayer and Consumer Rights, Consumers Union, Public Advocates, Southern Christian Leadership Council of Greater Los Angeles, and National Council of La Raza. Insurance Commissioner Garamendi joined with consumer and civil rights groups to argue that SB 841 was an unlawful amendment to Prop. 103.

In addition to protecting drivers from unfair surcharges and providing other protections, Proposition 103 has saved Californians over $23 billion on auto insurance alone.

Bill’s Sponsor Donated Heavily to Politicians Who Enacted Unconstitutional Law

Mercury Insurance, the chief sponsor of SB 841, began its lobbying effort to undermine this provision of Proposition 103 in 2002. That year, Mercury donated $35,000 to Senator Perata, who amended a bill in the final days of the legislative session and inserted Mercury‘s proposal. Perata is currently under federal investigation related to allegations that he has used his official powers to personally enrich himself. Governor Davis, who was under scrutiny for receiving $25,000 from Mercury just days after the bill arrived on his desk, vetoed the measure in 2002.

In 2003, Perata again pushed the proposal and this time Davis signed the bill. Mercury immediately contributed $175,000 to the governor’s unsuccessful campaign to survive the historic California Recall. FTCR has calculated that Mercury donated a total of $895,000 to politicians in 2002 and 2003 alone.

“We told lawmakers and Gray Davis that they had to choose between the contribution and the Constitution, and the politicians sided with their contributor,” said Douglas Heller, Executive Director of The Foundation for Taxpayer and Consumer Rights. “By throwing out the law, the Court ensured that the Constitution and California voters prevailed.”

Mercury has spent years and millions of dollars trying to get around Proposition 103, according to The Foundation for Taxpayer and Consumer Rights. Consumer activists said companies that constantly wage war on the voters’ wishes should be the target of a consumer boycott. Noting that Mercury‘s political efforts have long put Mercury in the path of trouble, FTCR pointed out that Mercury Insurance’s Chairman George Joseph was closely linked to a 1990s scandal that put a State Senator and insurance industry lobbyist in jail and that an investment fund associated with Joseph was subpoenaed as part of the current investigation into Senator Perata.

“Mr. Joseph ought to be more concerned about protecting himself from a boycott of his company and less on how he can influence politicians,” said Harvey Rosenfield. “At some point shareholders will have to ask why George Joseph has spent so much time and money in a frivolous fight against the will of the voters.”

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